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  • Writer's pictureBrain Booster Articles


Author: Akanksha Pandey, PGD in Intellectual Property Law from NLSIU, Bangalore

Co-author: Syed Fazl Askari, B.B.A.,LL.B.(Hons.) from Chanakya National Law University

The COVID-19 Pandemic, an unprecedented public health emergency has disrupted lives & livelihood across the globe. In the initial stages, its impact on the Indian economy was still uncertain. However, taking a cue from the 2008 Financial crisis, similar projections of an economic downturn were speculated. ‘The Wait & See’ approach adopted by the investors significantly slowed down the deals in the first half of 2020. This risk aversion approach was adopted considering the uncertainty in projecting long-term financials for any company. Investors were cautious in making any new investments and aimed to stabilize their existing portfolios.

The Private Equity and Merger & Acquisition space gradually started adapting to the rapidly changing market conditions. According to The PWC Annual Review and Outlook Report for 2021, the cumulative Private Equity investments and M&A deals valued about $80 billion this year, retaining momentum with last year deals which were valued at $74.8 billion. Out of this, M&A accounted for 50% of the deal values whereas Private Equity transactions were valued almost the same as last year at $38.2 billion. The $9.8 billion inbound investments in Jio platforms, accounted for 25% of the total deal value. Although there was an increase of 7% in the total deal values as compared to 2019, yet there was a significant drop in the volume of deals.


Sectors like travel, tourism, hospitality, and civil aviation, which are mainly dependent on physical movement have been negatively impacted due to the pandemic and the resultant lockdown. However, sectors like Telecom and Digital Entertainment witnessed significant growth opportunities. Taking into account the ‘new normal’, there was an increase in subscriptions to online streaming and visual entertainment platforms.

Companies in the traditional sectors, which embraced technology also remained profitable during this economic turmoil. EdTech emerged as a lucrative sector for investment, with the social distancing norms driving the need for virtual education. ‘Think and Learn’ which operates the online education platform Bjyu, acquired ‘Whitehat Jr’ for $300 million. The potential in online pharmacy has also increased in this time of public health emergency.


Lockdowns and restrictions have rendered the performance of certain contracts impossible or indefinitely delayed their performance. To mitigate such impacts of COVID-19 on the post-pandemic transactional landscape, variations in Private Equity and M&A deal structures are being incorporated. Some of these key changes are as discussed below:

Material Adverse Effect (MAE)

This clause permits the investor to terminate the transaction if the occurrence of a certain event has led to deterioration in the financial stability of the target company. Generally, the MAE clause includes “systemic risks'' which affects all parties in the transaction. Pandemics were not commonly included as MAE, this general stance will be evaluated given the current circumstances. However, the agreements entered into before the onset of this pandemic will need to be re-negotiated, without the specific inclusion of the term “Pandemic” as an exception to MAE, the matter will have to be interpreted based on the sector in which the target company operates and the duration of the impact of COVID-19 on that particular sector. In these cases, the burden of proof would lie upon the investor opting to walk out of the transaction. Investors would negotiate to include pandemics as an MAE for future transactions to relocate risk to the target companies, whereas these companies will negotiate to specifically exclude such clauses. Therefore, structural changes in the contract to limit the ambiguity regarding MAE clauses are required for future transactions.

Valuation of companies

Due to the uncertainty in the future valuation of companies, investors will seek to invest in convertible instruments, with an option of conversion based upon future performance or they will seek to invest in tranches to assess the profitability before making further investments.

Indemnity and Warranty

The Indemnity and Warranty clauses of pre-pandemic contracts will have to be re-negotiated based upon the present circumstances. Warranty and indemnity insurance, which was not very popular until now, will become more relevant, as parties will seek to ensure high-valued transactions against the unforeseen impact of this pandemic.


Despite the visible slump in our economy during the early onset of the pandemic, the second half of the year has seen some improvement in the value of the deals undertaken. However, the volume of the deals remains a concerning fact. This pandemic has affected most economies globally but the full extent of its impact remains uncertain. But this crisis has given rise to new opportunities for the companies to adapt to the tech-based evolution. Some of the most successful startups emerged from the financial crisis of 2008 in India, therefore with a little innovation and diligence, our economy can successfully navigate through this crisis.


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