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This article is written by Tanya Gupta who is pursuing a Diploma in M&A, Institutional Finance and Investment Laws (PE and VC transactions)  from Lawsikho.


Governments across the world are enforcing strict lockdown and social distancing measures due to the Covid-19 crisis deepens and the number of positive cases and casualties continues to mount rapidly. Pandemic plunged the global economy into an unparalleled recession as it mutated into an economic crisis due to all these mergers and acquisitions in India is sniffle, snuffle and sneeze in India in the short term.

There is a change and fundamental shift in M&A Landscape. The healthcare facilities are overburdened with work due to Covid-19 and the economy has been at a standstill. It has been instructed to all the people to stay at their homes and in case of emergency while going outside they should wear masks and carry alcohol sanitiser with them.

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The virus with its effect has been spread almost in every country due to which it makes it a global issue. Due to the social distancing concept which has to be maintained due to Covid-19 all the businesses are at a standstill with share markets recording great losses.

What are M&A Transactions?

In M&A transactions, two companies are consolidated through economic transactions by either taking the assets of another company or by combining shares of another company with their own thus increasing the valuation of the company. 

The mutual agreement of two equal companies to come together and merge the value of their shares is called a merger. When the parent company takes over the charge of another company and the shares of another company completely cease to exist is called acquisition and the new company or entity which is formed is legally identified.

The type of transaction basically depends on the manner of acquiring the business. In acquisition, the board of directors are removed from their position with immediate actions. In a merger, the board of directors of both the companies mutually work together in the interest of both the companies.

M&A Activity in Healthcare Industry

There is a rise in urgent care M&A activity as 2021 begins. We have seen urgent care systems taking the control of small urgent systems, healthcare companies that do not play a significant role in urgent care mergers and acquisitions and urgent care buying companies that complement their services. 

For example, more healthcare clinics are opened by retail chains like Walmart and CVS. Nowadays these urgent care clinics are not just used for urgency but they are also used for giving out vaccines, medicines and even doing annuals.

A merger’s significant goal in the healthcare industry is to lower the expenses while concurrent driving licenses and to make the quality of care better. When your firm is only known for one thing than to stay and run the business is more challenging nowadays. On the other hand, larger firms help the patient and provider pocket by offering more services.

M&A trends triggered by Covid-19

In 2021 and beyond various trends may witness a robust M&A market. Firstly, we can expect more megadeals from pharma companies while they acquire early phase products and private equity acquisitions. Scale and access to newer markets would be proven as a considerable benefit for larger companies.

As it is a situation of pandemic corporate remained to focus on strengthening positions, investing in scale and the sectors which are powered by technology and healthcare should be continued. In the pandemic, the situation scale is very significant and it is also proven that in order to survive you have to be large.

In 2021 M&A volume was contributed by private equity firms meaningfully. In 2020 M&A sponsored backed transaction comprises 26% per cent of M&A activity In fact by the end of 2020 financial sponsors have a record of 2.9 billion trillions of capital. Last year it is evident that many private equity funds investing across the capital to provide the companies with much more cash in these challenging times.

M&A transactions impacted by Covid-19 

The most significant impact of covid-19 is a worldwide recession. The Recession means an increase in unemployment, lack of demand in the market, low money supply and other negative effects. The current scenario is that the company can determine the ratio of their incomes to their expenditure. The positive ratio is able to make the company quality transaction and the negative ratio is able to mitigate the losses by taking precautionary measures.

The followings are some of the ways in which M&A Transactions would be impacted which are as follows:

Material Adverse Change (MAC) Clauses

Due to the pandemic situation, the focus is more on the documentation process of M&A translation and on the termination clause while again thinking about the continuation of the M&A deal.The material adverse change clause provides the opportunity for the stakeholder to walk away from the ongoing transaction. This clause is basically given in the purchase agreement.

The Material Adverse Change clause provides the opportunity to the purchaser to terminate the ongoing deal when there is a material adverse change in the seller’s company. It is a tedious task in itself to negotiate in this clause on the materiality of the event. Even the courts in our country have failed to provide any guidelines on the materiality event and given the opinion that any event which makes it impossible or restricted the party is considered as a material adverse change clause. 

This clause is enumerated in Section 56 of the Indian Contract Act, where the doctrine of frustration provides that the contract becomes void when the promisor due to an act after the contract is made can’t prevent an event.

Due to Covid-19, the problem for the sellers is to negotiate to include narrower terms in MAC Clause and for the buyers to include the lockdowns, epidemic, closure of territorial boundaries to be included in the agreement. 

A party seeking to invoke the MAC clause should check if there is an alternative which they are left with. If there is any other alternative then that should be their first priority. It is the duty of the parties to balance between the termination clause and the agreed term of performance. 

Earlier epidemics and other public health events were not included in this definition but nowadays these are the most important terms that were included in the contract and in future contracts.

For Example: If the completion of the agreement is based on the investors that if during the due diligence process of the seller’s company they reveal any fact or event which materially or adversely affecting the company then the buyer has the option to terminate the deal and walk away.  

Force Majeure Clause 

Due to Covid-19, there has been an economic crisis all over the world. Parties of the contract are not being able to perform the obligation of the contract that constitute essential services due to which serious questions arise owing to the ability of the parties.

The restriction has been imposed by the ministry of health and state governments on the movement of goods and persons due to which suspicion has been aroused for the performance of the terms and breach of contract is there.

This clause means any event which cannot be controlled. These events include both acts of nature and acts of people. This clause is negotiated to include war, terrorism, god, riots, government Force majeure clause includes both artificial and natural events with specific prescription and on the other in the force majeure clause events are not prescribed.

The affected parties are released from the contract when the force majeure clause arises. In the Indian Contract Act, 1872 there are two provisions that are related to the Act of God and the force majeure clause.

Section 56 of the Act provides that contract becomes void if it becomes impossible by happening of the event if the promiser couldn’t prevent. It explains the doctrine of frustration which means an act that is beyond one’s control which makes the performance of the contract impossible.

It is challenging for the parties to invoke the clause during the Covid-19 pandemic to get relieved from the performance of the contract as the event should have a direct impact on non-performance and also the party should search for alternate means of performance.

The question arises whether covid-19 have a direct impact on non-performance of a contractual obligation or is the steps taken by the government by imposing lockdown which restrict the movement of goods and services

For example: Suppose delivery prices to the customers suddenly go up due to new government legislation. This force majeure that is an unexpected situation means you don’t need to deliver the goods at the fixed price anymore then you have the right to negotiate the new prices.

Representation and Warranties

The Preliminary negotiating clause by the seller is representation and Warranties. The need of this clause in the M&A agreement is to protect the losses which arise due to the seller breach of representation in the agreement. 

The risk which emerges from the pandemic the purchaser would assess them and seek warranties for it. The buyers to secure price adjustments have an edge to additional incentive to push for a holdback of price along with payment of indemnity claims. 

The buyers are free to walk away from the deal if they believe that representations and warranties are untrue in the agreement.

At last, the most diligently negotiated contract due to a pandemic is insurance. Many exclusion clauses have been brought into place as well as insurance companies seek to indemnify the losses Such exclusion clauses helps to recover every loss arising due to covid-19 and the scope of such clauses is limited by negotiation.

Ordinary Course of Business and Time between Signing and Closing of the Deal

Covenants and undertakings are present in the draft of the M & A agreement which mandates the target company to continue in the “ordinary course of business” signifying the business to operate on a day to day basis to preserve the value of the target business. The compensation of employees is not changed or terminated or to make the capital expenditure only with the permission of the buyer, pledge assets outside the normal course of business are the terms which are included in the covenants.

Due to covid-19 even in covenants, some exceptions need to be included which enables the target company to execute the business and due to adhering to the government some actions need to be taken by the companies which would prove outside the ordinary course of business which may be in the best interest of the company.


The Merger is the mutual agreement of both the companies of coming together through economic transactions on the other hand acquisition involves the company taking over of another company through taking over the assets replacing the board of directors of another company.

The M&A transactions are the type of contract which consolidate or combine two or more companies. In both cases, a single entity is formed which are independent and legally recognized in the corporate world.

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