Greater Discrepancies with Purchase Price

The pandemic has brought into question the long-term viability of many businesses; in turn, this tends to create discrepancies in purchase price and business valuations between buyers and sellers. Many business models are being scrutinized beyond normal due diligence, and sellers during the pandemic are increasingly expected to demonstrate the impact (albeit largely unknown) that the pandemic will have on a company’s long-term economic health. Discrepancies in valuation may result in more substantial purchase price adjustments. 

A buyer’s motivation for acquiring a business may also influence the purchase price. While buyers interested in financial gain will likely be focused more on short-term profits, others may be more focused on strategic plays and growth potential.  It goes without saying that the type of business plays a large role in all of this.  Additionally, in today’s economy there is still much uncertainty regarding survival and what the world looks like post-pandemic.  All of these factors can greatly impact the purchase price of a transaction.

Working Capital Adjustments

The way in which many businesses operate has changed substantially during the pandemic. Additionally, many businesses have been forced to pivot and/or adapt their operations to account for less working capital and cash flow.  One common area of contention within mergers and acquisitions right now is whether working capital should be measured against standards that existed before the pandemic, or if projections should be based on the current economy. Buyers will favor projections based on the current economy, as this will likely justify a lower purchase price, while sellers will tend to favor projections based on numbers and valuations pre-pandemic. 

Anticipated Timelines Have Increased Greatly

The day-to-day operations of many businesses have been significantly disrupted and impacted as a result of the Coronavirus. Understandably, some companies have implemented remote-work policies in the hopes of keeping workers safe and healthy.  Despite these efforts, however, the time frame for merger and acquisition transactions may inevitably take longer, as the flow of information is not as fluid as it once was.  Also, performing physical and internal inspections has become more difficult, dictating longer periods to be needed for due diligence.  For several reasons, the parties to a merger or acquisition can expect the entire transaction to take a longer period of time from beginning to end than they once did.

Tax Considerations

Signed into law on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act is a $2 trillion spending package that contains various types of pandemic-associated relief, including direct payments to individuals as well as small business loans. Many of these changes impact tax returns for previous years as well as for the 2020 tax year. The changes and issues that have arisen may also have a substantial impact on determining valuations of companies and their assets.

Speak With a Knowledgeable Corporate Law Attorney

If you are interested in discussing a potential merger or acquisition, one of the best things that you can do is retain the assistance of an experienced attorney. Contact Resnick Law PC today to schedule a free consultation. 

Burgeoning Coronavirus Lawsuits

In May 2020, lawsuits were filed against Princess Cruise lines alleging that the company was grossly negligent in exposing passengers to COVID-19. The lawsuit claims that the cruise ship was allowed to go to sea despite the knowledge that previous ship passengers had the disease. The Princess Cruise lawsuit is only one COVID-19 lawsuit of many, and the numbers keep going up. 

To minimize the risk of ending up in a lawsuit, some companies have resorted to what once seemed like drastic measures. For example, there have been several news stories of companies throwing away tens of thousands of dollars in food to avoid potential infection risks.

What Duty Business Owners Have to Customers

In Michigan, business owners have a duty to use reasonable care to protect customers from an unreasonable risk of harm created by dangerous conditions. Business owners must take reasonable care to provide customers with a safe environment. This means that business owners must discover and eliminate dangerous conditions on their premises and avoid creating conditions that could make things unsafe.

In Michigan, a customer’s contributory negligence is not a complete bar to recovery. Given the extensive recommendations about staying indoors and maintaining a six feet distance from others, there is at least some degree of culpability if a person claims to have contracted COVID-19 while patronizing a business in person.

The Role of CDC and MIOSHA Guidelines

While there is no specific requirement that business owners must follow guidelines established by the Centers for Disease Control and Prevention, to avoid third-party liability, it might be a good idea to follow these guidelines to keep customers as safe as possible.

Unlike the CDC, the Michigan Occupational Safety and Health Administration (MIOSHA) has issued workplace guidelines for business owners that include requirements that must be followed. For example, employers must create a written exposure control plan that includes exposure determination and addresses what measures will be taken to prevent worker exposure to COVID-19.

Steps Businesses can Take

Some of the helpful strategies business owners can take to mitigate the risk of coronavirus exposure include:

• Discouraging handshaking
• Informing workers about what they can do to reduce the risk of COVID-19 spread
• Practicing proper respiratory hygiene
• Routine cleaning and disinfecting
• Separating sick employees
• Using sufficient building ventilation

Speak With a Michigan Corporate Law Attorney Today

If you have questions or concerns about how your business can better mitigate liability during the COVID-19 pandemic, it can help to speak with a knowledgeable corporate law attorney. Contact Resnick Law, PC today to schedule a free case evaluation.

What Constitutes Force Majeure

When a “force majeure” event occurs, it prevents a party from performing its obligation under a contract in that either the event could not have been foreseen or could not have been prevented even with care and diligence. While many people think of natural disasters when considering force majeure clauses, this category can also pertain to wars, government actions, and pandemics.

Just because a specifically enumerated event occurs, does not mean that a force majeure clause becomes effective. Instead, for the force majeure clause to come into play, an event must result in “extreme and unreasonable” difficulty or hardship. 

A force majeure event will also not excuse a performance if the failure to perform is the result of a party’s negligence instead of the event itself. If a party to a contract could have prevented the force majeure event, the force majeure will likely not be effective. 

The Role of Force Majeure in Business Contracts

There are several ways that parties can be protected if there is a force majeure in their contract. If a contract’s purpose is frustrated or incapable of being performed, the clause can protect a person through the doctrines of impracticability or impossibility. 

Force Majeure and the Coronavirus

Because force majeure can encompass government actions that make contract performance impossible, these clauses are likely to come into play in various contracts during the COVID-19 pandemic. In this setting, a force majeure might take the form of a lockdown order or other government action that makes it impossible to perform a contract. 

Advice When Considering the Use of a Force Majeure Clause

Some helpful strategies that parties navigating force majeure clauses should remember to follow include:

• If you plan to use the COVID-19 pandemic as a reason to not perform under a force majeure clause, make sure to give the other contracted party ample notice.
• Remember to discuss potential business solutions with the other party. While the coronavirus has resulted in delays in shipment, reduced supplies, and other hardships, it might still be possible to arrive at an acceptable arrangement.
• The strongest arguments that a force majeure event has occurred and made the terms of a contract impossible often involve government actions taken to control COVID-19 as well as unanticipated disruptions of the supply chain. 
• Force majeure is a temporary defense and only applies for the time that the event restrains a party’s performance under a contract. 
• To learn even more about the relationship between force majeure clauses and the coronavirus pandemic, considering reading the American Bar Association’s recent article “Is the Coronavirus a Force Majeure that Excuses Performance of a Contract?”

Speak with a Knowledgeable Corporate Law Attorney

How “force majeure” applies to the COVID-19 pandemic remains largely unsettled. Fortunately, an experienced corporate law attorney can help you navigate this important issue and many others. Contact Resnick Law PC today to schedule a free case evaluation.