Clifford Chance

Delaware Court of Chancery Issues First Pandemic-Related M&A Opinion

December 14, 2020

Since the COVID-19 pandemic upended the world economy and daily life around the globe, many buyers and sellers that signed acquisition agreements prior to the pandemic with respect to transactions that had not yet closed have carefully scrutinized the terms of their agreements to determine whether, and to what extent, the pandemic would allow buyers to refuse to close and, if so, on what basis. Many of these cases resulted in litigation, some of which is currently pending in various state courts, but most of which has since been settled. In virtually every case, however, the two key questions driving this scrutiny have been the same:

Q1: Does the pandemic constitute a "material adverse effect" and, if so, does it excuse the buyer's obligation to close?

Q2: Do the seller's responses to the pandemic comply with its obligation to operate the target business in the ordinary course between signing and closing and, if not, does it excuse the buyer's obligation to close?

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