COVID-19 Environment July 15, 2020 Mary Brown Sandys, Moderator - - PowerPoint PPT Presentation

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M&A Investment Considerations in a COVID-19 Environment

July 15, 2020

Mary Brown Sandys, Moderator Chief Marketing & Communications Officer Small Business Investor Alliance Chris Rossi Partner Troutman Pepper Alec Watson Partner Troutman Pepper Chris Miller Partner Troutman Pepper

Presented by:

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• Transaction Processes
• Considerations When a PPP Loan is Outstanding
• Due Diligence
• Representations and Warranties
• Closing Mechanics and Considerations
• Covenants and Closing Conditions
• Indemnification and Representation and Warranty Insurance Matters

Topics To Be Covered

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Transaction Process

• Types of deals getting done
• Sales processes
• Impact on exclusivity periods
• Financing considerations
• Availability of “committed” and limited “market flex” financing
• Equity backstops

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Considerations When A PPP Loan Is Outstanding

• Due Diligence
• Loan application and certifications made
• Use of proceeds
• Need to review PPP loan documents and supporting documentation
• Treatment of PPP Loan
• Funded Indebtedness?
• Repay or Not?
• Impact on Purchase Price (even if repaid)
• Impact on economics
• Risk allocations
• Lender/SBA approval – process and timing
• Supporting representations and warranties and, if executory, covenants (particularly as to

forgiveness matters)

• Financing sources considerations

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Due Diligence

• Taking additional time
• Limitations on in-person diligence and management meetings
• Diligence surrounding matters of customary concern have taken on greater significance, such as:
• supply chains
• IT systems
• employment matters
• insurance coverage
• contract “boilerplate” provisions such as force majeure
• Integration considerations

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Representations and Warranties

• Specifically tailored to COVID-19 impacts
• Greater significance as to those relating to operational matters, such as:
• supply chains
• inventory levels
• customer impacts
• government shut down orders
• facilities and remote working environments
• employment matters

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Closing Mechanics And Considerations

• Sign and close vs. executory
• If executory, . . .

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Covenants And Closing Conditions

• Heightened focus on deal certainty
• Additional interim operating covenants to address COVID-19 associated risks
• Decision-making regarding target’s response to further virus outbreaks
• Timing for third party/governmental consents and approvals
• Role of “Material Adverse Effect” (MAE) provisions

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Indemnification And Representation And Warranty Insurance Matters

• Scope of “fundamental” representations and warranties
• Impact on Indemnity Obligations
• Representation and warranty insurance – extent to which COVID-19 related items are excluded

Q&A

Christopher Rossi

Partner christopher.rossi@troutman.com

Alec Watson

Partner alec.watson@troutman.com

Christopher S. Miller

Office Managing Partner chris.miller@troutman.com