According to Bloomberg, so far this month (3/1-3/17) ten M&A global deals have been terminated. Interestingly, during the same period for the last 3 years, deal terminations have been at least 2 times higher. However, there are over 10,000 pending deals that may be impacted by COVID-19 in future days and months.
Citing Material Adverse Changes (MAC) and other claims, we may see an uptick in litigation related to M&A deal breakups.
Despite the societal and market turmoil and the potentially significant economic effects of the pandemic, a buyer seeking to cite the effects of COVID-19 as the cause of a MAC to get out of an existing purchase agreement may have a difficult time establishing to a Delaware court’s satisfaction the requisite severe and lasting changes on a target needed to satisfy the MAC standard. Both the severity and, in particular, the duration of the crisis are too uncertain for the time being. That could certainly change if the expected downturn is more severe and lasting—particularly in certain industries that are consumer-facing and could see the severest negative effects if customers are advised to stay away for extended periods or if consumer habits are permanently changed.