Legal Issues Surrounding M&A in Healthcare Sector Considering Covid-19 in India
In India, due to the rise in the Covid-19 virus and the number of positive cases, the Government enforces strict lockdown and social distancing norms in the country. This pandemic severely affects the country’s economy, and it altered into an economic crisis due to all these Mergers and Acquisitions in India. There is also a primary shift and change in the Mergers and Acquisition landscape. Due to Covid-19 in India, the healthcare facilities are overloaded with work, and the economy has been at a standstill. Therefore, there are some legal issues surrounding M&A in healthcare considering the Covid-19 pandemic.
The Covid-19 virus has been spread all over the world due to which makes it a worldwide issue. Because of the social distancing idea which has to be maintained due to this virus, all the businesses are at an idle with share market recording huge losses. In this article, we shall discuss legal issues surrounding M&A in healthcare sector considering Covid-19 in India.
Mergers and Acquisitions Transactions – Meaning
Under M&A transactions, two entities are combined via economic transactions either by combining shares of another company with their own or by taking another company’s assets, increasing the company valuation. The Mutual Agreement between two entities of companies to combine and merge the value of their share is called a Merger. When a company takes over the charge of another company and the shares of another company entirely cease to exist is known as an Acquisition, and the new entity which is established is legally recognised.
The type of transaction essentially depends on the way of acquiring the business. In acquisition, the BoDs (Board of Directors) are removed from their position with immediate actions. In a merger, the BoDs of both the entities mutually work together in the interest of both the entities.
Activities of M&A in Healthcare Sector
At the beginning of 2021, there is an increase in the activities of M&A in the healthcare sector. We have observed urgent care systems taking control of small vital systems, healthcare entities that don’t play an essential role in critical care Mergers & Acquisitions and vital care buying entities that complement their services. For instance, more and more healthcare clinics and shops are opened by retail chains like CVS and Walmart. These days such vital care clinics are not only for importance, but they are also used for giving out medicines, vaccines & even doing annuals.
The primary goal of M&A in healthcare sector is to lower the expenses while simultaneous driving licenses and to make the feature of care better. When your company is only known for one thing, then to stay & operate the business is more complicated or challenging these days. On the other side, huge companies or firms aid the patient & provider pocket by offering more services.
Merger and Acquisitions Trends Activated by Covid-19 Pandemic – M&A in Healthcare Sector
In the year 2021, various trends may observe a solid Mergers and Acquisitions market. Primarily, we can anticipate more enormous deals from pharma companies while they get early phase products & private equity acquisitions. Scale & access to newer markets would be proven as a considerable benefit for huge companies.
As it’s a pandemic condition, companies or firms remained to focus on strengthening positions, investing in scale & the sectors which are influenced by healthcare and technology should be continued. In this Covid-19 pandemic, the condition is very major, and it’s also proven that you have to be big to survive.
In the year 2021, Merger and Acquisition volume was contributed by Private Equity Firms significantly. In the year 2020, Mergers and Acquisitions sponsored backed transaction includes 26% of Merger and Acquisition activity. In fact, at the end of 2020, financial sponsors have a record of 2.9 billion of capital. Last year it was obvious that many Private Equity Funds investing across the capital to give the entities much more money in these difficult times.
How are the M&A Transactions Affected by Covid-19?
The significant impact of Covid-19 is a global downturn; it means an increase in unemployment, absence of demand in the market, low cash supply & other negative results. The present condition is that the entity can find out the ratio of their incomes to their expenditure. The positive ratio can make the entity a quality transaction, and the negative ratio can mitigate the losses by taking precautionary measures. Following are some ways in which Mergers and Acquisitions transactions would be affected:
1. MAC Clauses (Material Adverse Change)
Because of the pandemic condition, the focus is more on the documentation process of Merger and Acquisition translation and on the termination clause while again idea about the continuation of the Mergers and Acquisitions deal. The MAC clause gives the opportunity for the stakeholder to walk away from the in-progress transaction. Material Adverse Change clause is usually given in the purchase agreement.
This clause provides the opportunity to the purchaser to end the in progress deal when there is a MAC in the company of the seller. It’s a tiresome task in itself to negotiate in the MAC clause on the materiality of the event. Even the courts in our nation have failed to give any guidelines on the materiality event & given the view that any event which makes it restricted/impossible the party as a MAC clause.
Due to this pandemic, the problem for the sellers is to negotiate to comprise narrower terms in this clause and for the buyers to comprise the epidemic, lockdowns, closure of territorial boundaries to be included in the agreement. A party looking to raise this clause should check if there is an option which they are left with. It’s the duty of the parties to balance between the termination clause & the approved term of performance. Earlier epidemics & other public health events were not comprised in this meaning, but in current days, these are the most important terms that were contained in the contract and future contracts.
2. Force Majeure Clause
Due to the pandemic, there has been an economic disaster all over the globe. Paters of the contract cannot execute the obligation of the contract that constitutes vital services due to which serious queries arise owing to the parties’ capability.
The restriction has been imposed by the Ministry of Health and State Governments on the movement of goods and individuals to which misgiving has been excited for the performance of the terms & violates of the contract is there.
The Force Majeure Clause means any event which cannot be controlled. Such events comprise both acts of nature & acts of people. This clause is negotiated to comprise terrorism, riots, god, war, government Force Majeure Clause comprises both natural & artificial events with precise prescription and on the other hand in this clause events are not prescribed. The affected parties are released from the contract when this clause arises. Under the Indian Contract Act, 1872, there are two provisions that are concerning the Act of God and the Force Majeure Clause.
3. Warranties and Representation
The initial negotiating clause by the seller is warranties and representation. The requirement of this clause in the Mergers and Acquisitions Agreement is to safeguard the losses which increase due to the seller violation of representation in the agreement.
The risk which appears from the Covid-19 pandemic the purchaser would assess them and look for warranties for it. The buyers to protect price adjustments have a frame for extra incentives to push for a holdback of price and the payment of protection claims.
The buyers are free to walk away from the deal if they consider that representations & warranties are incorrect in the agreement. In the end, the most industriously negotiated contract due to a pandemic is insurance. Many exclusion clauses have been bringing into place as well as insurance entities seek to assure the losses such exclusion aids to recover every loss increasing due to Covid-19 & the scope of such clauses is restricted by negotiation.
Conclusion – M&A in Healthcare
After discussing the impact of Covid-19 in M&A in the healthcare industry, it is concluded that there is so much more besides the Covid-19 tests & vaccinations happening behind the gates of healthcare providers globally. Your local vital care centre may be considering a merger with a leading healthcare corporation. In 2020, the health care sector was beaten down from the overflowing of Covid-19 patients, causing the wave effect of the postponement of non-emergency procedures. But, the activity of M&A in healthcare is set to increase with the return of non-critical medical interventions & healthcare entities betting on growth to get healthier & stronger.
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