Shifting landscapes: legal due diligence is critical for PE buyers
The sprawling impact of COVID-19 has touched every industry and has ripple effects that will continue to be felt for years. Companies are experiencing difficulties and setbacks across industries, most recently in the labor market and in various supply chains. In light of the dynamic environment brought on by the pandemic, private equity buyers should be targeted and thorough with their acquisition processes. The legal due diligence process is vital for private equity buyers to ensure they are well-equipped to face this shifting landscape. This is true now more than ever.
In order for PE buyers to remain flexible with their portfolio companies post-closing, it is imperative to become even more critical of every target’s material contracts used in their business. Concerns raised during a PE buyer’s review of material contracts likely would not prevent the deal from closing. However, the negotiation process can allow the PE buyer to have a full understanding of the scope of customer and vendor obligations. The outcome may require revised contracts with key customers or suppliers to be closing deliverables from the seller.
In the current corporate environment, the following are key concepts that every PE buyer needs to analyze in a target’s material customer and vendor agreements: force majeure, requirements and forecasting, and price flexibility.