The Covid-19 crisis has created shaky ground for business acquisitions that were already underway, but Jeffrey Schwartz says there’s still opportunity to get a deal done.
Schwartz, a partner with law firm Phillips Lytle in Albany, has been working with clients to close several deals. The key right now: flexibility from buyers and sellers.
The Business Review spoke with Schwartz about how his clients are adjusting to the unpredictable economic situation caused by the pandemic.
People are still investing right now? Despite the relative near-term economic impacts, investors are still interested in long-term opportunities. The people who have money aren’t getting paid to sit on it, so they’re still looking for deals.
In one of my recent deals, the buyer was purchasing an essential business in the heavy construction equipment industry. In another deal, the client was buying out a partner in the infrastructure industry.
One of the discussed topics in Washington is, will there be an infrastructure bill. So if infrastructure’s going to boom, then that’s a great business to be buying into.
Deals are still getting done. They are taking longer, it takes some more thoughtful drafting, there are some logistics issues. The smart money is still invested or investing.
How is the crisis affecting ongoing deals? There are a lot of deals that are staggered, meaning a potential buyer commits to purchasing a business as long as certain conditions are met. When those conditions are satisfied, you then close.
The really hot issue is what happens in that interim period.
If I’m the buyer, the deal always says the seller will operate in the ordinary course, do nothing different. And then, boom, you have this virus. When this virus hit, the business that my clients were looking to buy had changed quite a bit in the interim.
From a buyer’s perspective, if a company has been too negatively affected during this time, it could be seen as a breach in the agreement. From a seller’s perspective, having to take an action such as closing doors during Covid-19 often was unavoidable.
If you’re playing hardball, some buyers then want to back out.
What can they do to help the deal go through? What you need is for the parties to work together collaboratively to change the documents to reflect the facts. So the disclosure has to be updated, those representations about how the business operated in the interim have to be managed.
While backing out may be an attractive option for a buyer, it can also be expensive. And a seller typically would want to make sure a buyer does not back out.
So what I want is, if the business we’re buying is impacted, the only remedy isn’t just that we walk away. We can close, but, for example, we could have a purchase price adjustment.
This interview has been edited and condensed.