We’re committed to giving legal insights and practical guidance on the impact of Covid-19 on Romanian businesses.
COVID-19 Resources

Impact of the COVID-19 Outbreak on M&A Transactions

18 March 2020

In the context of the outbreak of COVID-19, eyes remain on the economy and the landscape of the M&A transactions will likely change as a result of this pandemic and of the measures taken by the states to protect the population.

The past few years saw economic growth and an increase in the number of the M&A transactions. These were largely carried out in a “sellers’ market”, with buyers pricing in the future growth. The pandemic and some of the state measures taken bring volatility into transactions and will likely re-balance the commercial position of the parties.

Some of the transactions might suspend on the short term, until the spread and measures necessary to fight the new virus are better understood. There are however alternatives for the parties to continue with the transactions while safeguarding against risks. The main concern of a buyer in a transaction these days is forecasting the potential loss of value or income of the target. To this end, a potential buyer is expected to seek additional due diligence and adapt transaction documents for the increased uncertainty.

To the extent commercially feasible, the parties could also take into account adapting the transaction structure.
It is recommendable to always keep in mind the rules on conducting negotiations and the risks for disrupting them.


The due diligence exercises carried out in this period should address, in addition to usual matters, aspects that could help the buyer understand the exposure of the target to the Covid-19 outbreak. In this respect, the analysis could include:

a) The target’s financial, organizational and business ability to navigate turbulent times;

b) Target’s vulnerability to the current pandemic (e.g., interruption of supply chain, exposure to governmental restrictions) or, to the contrary, the target’s propension to increase its business during the current pandemic (online applications / businesses may benefit from an increase in awareness and even of business);

c) Existence of force majeure and hardship clauses in the contractual arrangements of the target and the target’s and its customers’ and suppliers’ ability to successfully invoke force majeure or to request adjustments on the basis of hardship;

d) The level of exposure and potential remedies for the target from an employment law perspective;

e) The rights to process health data on employees, visitors and customers under the GDPR rules;

f) Specific industry related matters – e.g., permitting, supply chain, financial exposure towards clients and banks, fiscal incentives; and

g) The coverage and exclusions under insurance policies.


1. General note

As a general note, the standard force majeure or hardship clauses in the agreements concluded during the outbreak tend to be rather ineffective or have a very limited effect with respect to the outbreak itself (which is no longer an unpredictable event), so the companies should carefully assess the extent to which they could rely on such clauses in view of adapting the contractual arrangement between signing and closing.

2. Material Adverse Change or Event

The material adverse change clause (“MAC”) is one of the contractual instruments by means of which balance is to be achieved and the buyer and the seller allocate between them the risk of significant negative changes in the target business between signing and closing.

In the current context, the parties may consider inserting tailored MAC clauses addressing the pandemic related risks. For example, a significant depreciation of the value of the target, a significant increase in target contracts’ disputes with customers or suppliers or the interruption of the supply chain and the inability to re-route it within a certain period could be defined as MAC events, allowing the parties to exit the deal if the target becomes affected by the outbreak to a material extent.

It is recommendable for the parties to agree upfront on the materiality threshold for the activation of the MAC clause, as well as on all relevant parameters for its computation, in order to secure an objective and swift transactional mechanism, instead of leaving the assessment of the materiality criteria to an independent expert or to a court of law.

3. Pricing & adjustment

It may be expected that some of the additional risks will be included in the price and that additional adjustments will be sought. The effects of the pandemic will be seen in the 2020 financial statements and potentially beyond, so the parties may defer the price adjustment timing to reflect the target’s value on closing date.

The Sellers may resist a decrease in transaction value based on the target’s performance during a challenging but limited time. Mechanisms can be sought to share an increase in performance after the crisis. However, we believe that to achieve this, sellers may need to be transparent and increase buyers’ confidence in the target’s good prospects.

4. Reps & Warranties / Indemnities

As mentioned above, the sellers are now in a better position to assess the strengths and risks related to the target business. Despite additional due diligence from the buyers, the sellers may need to accept an increased allocation of risk through reps & warranties and indemnities, rather than seeing an impact reflected in the price.

5. Interim conduct

Where the transaction is dependent on third parties (e.g., financing banks, escrow agents, regulatory authorities), delays or possible complications for the transaction in the context of the Covid-19 outbreak need to be considered and correspondingly regulated in the transaction documents in order to avoid transactional blockages.

The contractual position of the parties in M&A transactions facing Covid-19 related risks could be strengthen by a closer attention to interim conduct between signing and closing.

An increased cooperation is possible, subject to appropriate safety mechanisms that would also need to comply with the antitrust rules. The Competition Council has procedures that may allow the parties to implement the transaction before a formal approval, if certain conditions are met.


Parties could reconsider the deal structures. Such restructuring can be adapted on a case by case basis. Companies may choose a staged transfer instead of the full participation, followed by the exit of the seller from the target once the economic context stabilises. This way, the parties would be able to split the potential risks the target faces and join forces and capabilities in maintaining the business stable. A shareholders’ agreement would need to be put in place to regulate the interim partnership between the seller and the purchaser, in addition to the sale-purchase agreement. Of course, assessing this option would need to factor in the level of trust between the parties and their ability to operate together.


While companies may choose to adjust their business plans during this period, negotiations already started must be carefully assessed in the process. Irrespective of whether such negotiations are taking place under the framework governed by a previously signed letter of intent or memorandum of understanding, the companies must also follow the general rules established by the Civil Code. The parties cannot be forced to enter into agreements, but once the negotiations started, some obligations become incident.

The general principle is that negotiations must be carried out in good faith and the party disrupting the negotiations can be held liable if such principle is breached. It is still to be assessed whether the current circumstances associated with the Covid-19 outbreak could stand as solid ground for a disruption of negotiations; the answer could depend on various factors, such as the stage of the negotiations, the conduct of the parties until the disruption occurred, the actual status of the pandemic in the relevant geographical region, its impact on the target and the related industries, the measures undertaken by the authorities and the actual circumstances in which the disruption itself occurs.

Thus, the companies should carefully assess the impact of their adjustments on the business plans on ongoing negotiations in order to avoid financial exposure resulting from disruptions. Companies should rather seek making a thorough legal and financial analysis of the potentially incident scenarios and try reaching an agreement on a renewed timeline for negotiations or on the conditions for termination, as the case may be.