SS M&A Litigation Outlook - Flipbook - Page 5
COVID-19 and M&A transactions
In early 2020, a flurry of lawsuits were filed
alleging that a buyer was excused from having
to close an M&A transaction on the grounds that
COVID-19 caused a material adverse effect (MAE).
Most of the COVID-19 MAE cases settled, but in
Q4 2020, two significant decisions were issued.
First, in Travelport v. WEX, the English High
Court found that the COVID-19 pandemic
constituted an MAE entitling an M&A buyer
to back out of its agreement to purchase a
payment solutions company for US$1.7 billion.
The central question addressed was whether the
target company fell within a specific “industry”
that had suffered a disproportionate impact from
COVID-19, as the MAE clause did not apply if the
target company experienced the same impact as its
competitors. The court concluded that the proper
comparison was the broader “business-to-business
payment” industry, rather than the defendant’s
suggestion of a more specific “travel payments
industry,” because the term “industry” in the MAE
clause was deemed intentionally broad. Notably,
the English High Court looked to Delaware law for
guidance in dealing with MAE issues due to a lack
of relevant English case law.
Second, in AB Stable, the Delaware Court
of Chancery found that the impact of the
COVID-19 pandemic did not cause an MAE
because, even though the definition of an MAE did
not expressly include the term “pandemics,” the
contract nonetheless contained an exclusion for
“natural disasters or calamities.” The court also
found, however, that the buyer was not required to
close on different grounds, namely, that the seller’s
response to the COVID-19 pandemic violated the
seller’s covenant to operate the business “in the
ordinary course.”
We anticipate that courts will continue to deal
with COVID-19-related issues into 2021 and
potentially beyond.
5
