COVID-19 Due Diligence

Whilst many companies, together with their shareholders and directors are navigating the continuing disruption of the COVID-19 pandemic, some have made the decision that now is an opportune time to sell the business. What do buyers need to consider when pursuing a new opportunity at this time? 

The concept of “Caveat emptor” meaning “buyer beware” is integral to the approach to an acquisition and undertaking the due diligence process is one of the most crucial elements of the transaction Buyers must ensure that they are fully aware of all/any potential skeletons that may be lurking in the closet to expose risks and liabilities. Government imposed lock downs as well as global restrictions caused by the pandemic, coupled with social distancing rules have caused unprecedented disruption to businesses. This makes the due diligence process more important now, than ever.

The due diligence process is largely bespoke, by raising enquiries specific to the target company, its business undertaken and the particular industry or sector in which the company operates within. In terms of COVID-19, buyers will want to consider the following enquiries:

Contracts

Every company in some way will have been affected by the COVID-19 pandemic, which would have a knock on effect on the relationships they hold with their customers and suppliers. Buyers will want to analyse whether the target company is able to perform their obligations under existing contracts or if there is a potential that another party is not in a position to carry out their obligations thus affecting the company. In the event that a contract has been terminated and invoked any force majeure rights, the Buyer will want to analyse what impact this will have on the target company to continue operating in the ordinary course.

Compliance

COVID-19 triggered emergency changes in law and regulations and implemented new initiatives with the aim of protecting against the effects of COVID-19. Consideration should be given to whether the company has been compliant with these changes and whether any element of the company’s business or sector is restricted in any way as a result of the changes implemented. 

Data Protection

Whilst working remotely and having employees working from home in response to COVID-19 may have its benefits, there is a heightened risk when it comes to Data Protection.  What has the company put in place to reduce the risk of a breach of Data Protection or potential cyber-attack? Has the company experienced any issues which if not dealt with could result in a breach? In view of new working practices the company should review policies in place for its employees.

Employment

Inevitably the pandemic will have affected those employed by the company, whether this is through absence as a result of isolation from contracting the virus or due to a health condition which puts them into the clinically extremely vulnerable or clinically vulnerable categories.  Has this impacted the business of the company? Have health and safety procedures to ensure a safe working environment been put in place for those who cannot work remotely? Are there policies for employees to work remotely from home? Has the company had to make the tough decision to make any of its employees redundant or furlough its employees? 

Finance

Whilst COVID-19 triggered emergency changes in law and regulations, financial schemes and other measures were put in place to support UK businesses to protect them against financial issues as a result from the pandemic. Consideration should be given to what financial support has been obtained and whether this has been accounted for in the appropriate manner or what support is the company eligible for which can be obtained following the completion of the transaction.

Insurance

To protect the business a company may have sought to claim against their insurance policies, in particular claiming for business interruption losses as a result of COVID-19. Enquiries will need to be raised to ensure that the claims have been properly dealt with and whether as a result of such a claim this has affected the insurability of the company in the future.

IT Systems

With new working practices implemented for the foreseeable or even the new normal for the company, can the company’s IT infrastructure deal with and support secure remote working. Has the company needed to increase the licenses held or review terms of any of its licenced software? Are there any issues with the IT infrastructure which will hinder the ability to have increased demand as a result of the pandemic?

Tax

The buyer should always seek to understand the tax position of the company and the extent of any potential exposure of risk to the company. In view of changes to law, regulations and implementation of financial assistance as a result of COVID-19 it is more prevalent to understand the additional tax risks the company may be exposed to as a result of obtaining assistance during this unprecedented time.  Whilst we cannot advise on tax issues, additional enquiries should be raised and responses on the same can then be discussed with your accountant or financial advisor.

The above mentioned points of consideration are by no means an exhaustive list, the intention of the due diligence process and the questionnaire is to ensure that the buyer knows every detail about the company, big or small, good and bad every cupboard should be checked.

The due diligence process is not just a benefit to the buyer, but in turn protects the sellers position by giving the buyer actual knowledge and negates the sellers liability for any potential breach of warranty, which has been negotiated under the requisite agreement in play to govern the testosterone gel stacking oriental testosterone transaction.  Whilst the due diligence process is generally undertaken at the start of the transaction, more companies are deciding to undertake the process prior to the point of a sale being negotiated. This not only ensures the company, its shareholders and directors are prepared for the process, but helps to identify and take any necessary action to address those identified points that need dealing with, such as ascertaining ownership of intellectual property or reconstituting statutory books.

If you are interested in buying or selling a business and would like more information in relation to the Due Diligence process then please do not hesitate to contract our experienced team on 01604 828282 / 01908 660966 or email BusinessServices@franklins-sols.co.uk.