Warren Katz discusses M&A during the pandemic and changes we can foresee post-COVID-19 with Financial Post

May 22, 2020

Warren Katz, M&A lawyer and Managing Partner of the Montréal office recently spoke to Financial Post to discuss what has happened to dealmaking since the pandemic and what changes we can foresee with M&A deals following COVID-19.

Future M&A deals could see changes in “material adverse effect” clauses and language in closing covenants to protect a buyer or seller. “I have no doubt that our approach to these provisions will change going forward as a result of this pandemic,” said Warren Katz. “The precise language of an agreement is critically important. Some buyers will have the right to terminate while others will not.”

Warren added that some deals that were close to fruition when the pandemic shut down much of the North American economy may now have been returned to the negotiating table, while others that were announced could yet wind up in court over the contract’s language and whether it provides an out for buyers. “I expect that some of these agreements will be litigated as it becomes clear that the effects of the pandemic will continue for at least the next few months with governments continuing to limit business activities across sectors,” he stated.

Warren tells Financial Post that factors related to the current crisis are driving activity in the mid-market sector, while fewer larger-cap deals are taking place. “This is no surprise given the volatility in the market and the availability of financing,” he said, adding that uncertainty about financing amid the pandemic crisis is factoring into negotiations.

“Buyers are more likely to consider constructs such as reverse termination fees to mitigate against financing risks,” Warren said.

Warren sees that while the global focus on COVID-19 has disrupted what was one of the longest bull runs we have seen, “both strategics and financial sponsors remain very active in other areas, such as loans and strategic investments, including PIPES (private investments in public companies).”

“We may see governments encourage Canadian companies to expand into other areas, such as food and health, for national security reasons,” Warren said.

He further adds that “growth in certain sectors will likely result in consolidation through mergers and acquisitions.”

Read more in author Barbara Shecter’s article “Economic shutdown forces dealmakers to play short-term hardball as long-term changes loom” in the Financial Post.