It has been nearly 18 months since the onset of the pandemic and the world has already experienced far reaching implications of Covid-19. While the impact of Covid-19 has affected every country, every sector and every business, the impact has been rather brutal on some countries and especially on some sectors and businesses. For e.g. sectors like hospitality, retail, travel & tourism & aviation have seen a greater impact as compared to some of the other sectors like information & technology, manufacturing etc.
During this time, the quote from Benjamin Franklin seems rather apt, “Out of adversity comes opportunity”. After the first few months of uncertainty, the corporate world was rather crude to accept the harsh reality that Covid-19 was here to stay for long and business owners/corporations across sectors the world would need to alter their business models or structures in face of these existential crisis. Stock markets across the world rallied to record highs starting from second half of 2020 fuelled with optimism around the vaccine discovery and inoculation and this has had a direct impact on the deal making activity as well. The year 2020-2021 saw one of highest venture capital / private equity participation amongst start-ups and early stage companies (including in India).
As we move along, it is important to analyse and reflect upon some of the learnings especially for deal makers during this period to help us stay ahead of the curve and be better prepared.
Here are the key takeaways on the changing landscape of deal making in India and what one can expect:
- New Age Sectors– The pandemic has accelerated digital participation amongst consumers. Many Indian who traditionally relied on brick and mortar moved online to an array of services largely e-commerce driven ranging from food delivery, e-grocery, fintech, pharmacy, health care services, fashion & gaming. This shift in the consumer behaviour has also increased the deal activity in the above sectors. Lawyers would also need to up their “sector expertise” and their “business quotient” to understand these new age business models. Some of these new age businesses require unique solutions and traditional methods in terms of drafting or structuring may not be fully effective. For e.g. sectors like cryptocurrency or fintech are fairly nascent/unregulated and traditional methods applicable to a financial services sector may not be applicable to these new age businesses.
- Deal timelines have shrunk– Covid-19 has significantly led to shorter timelines for deal execution and closing. Deals which otherwise take several months or years in some cases have been reduced to weeks and few months. Bankers, lawyers and deal makers have had to adopt and adjust to this acceleration on account of Covid-19. The general expectation going forward can now be expected to this being the “New Normal” for deal closing timelines. Law firms and lawyers would need to build, implement adequate processes and increase efficiencies to ensure quick turnarounds and also ensure effective resource management to match these expectations. One can expect a lot of standardisation across preliminary or basic tasks or issues viz. certain due diligence processes, contract templatization for businesses, policies (including governance policies).
- Faceless Negotiations / Remote working- One of the biggest impact of Covid-19 was the rather reluctant acceptance of faceless negotiations and remote working. Lawyers and deal makers across the world have closed record number of deals via countless Zoom Meetings and Microsoft Teams calls. Team members and clients got accustomed to working remotely and no longer requiring those early morning flights, physical meetings or spending hours in commute to get to work. Courts have heard and disposed matters via virtual hearings. While the remote working and virtual negotiations have significantly helped save costs and time, this has come at the expense of junior lawyers who have missed learning the invaluable lessons of soft skills and inter-personal skills in deal making. While faceless negotiations and remote working will never replace physical interactions, having said that, in the long run the hybrid model seems most likely to persist and young lawyers should make good of the lost opportunities at every possible instance. Lawyers would also need to get accustomed to teams working remotely and introduce systems and processes to ensure effective communication between teams (which would have otherwise been possible in physical office environment).
- Increased Focus on Contractual obligations- Due to Covid-19, several aspects of a transaction for e.g. technical diligence, asset verification, business & human resource diligence/ integration etc. have all moved digital or with very limited dependency on physical review or feedback. Often reliance or comfort is drawn by the purchaser/acquirer in form of third party certification or representations and warranties provided by sellers, company or promoters. In such situations, there need to be increased focus on drafting the sale purchase agreement or investment agreement where all obligations or representations sought on any matter should be specific and crystallised. For identified issues/liability matters, the acquirer should consider seeking upfront value adjustment or holdback versus purely relying on indemnity obligations.
- Changing Regulatory Landscape- Regulations are fast evolving as well to keep pace with the changing landscape. The policy makers also realise the need of introducing new regulations or overhaul some of the archaic regulations in India. The National E-Commerce Policy, Uniform Labour Code, Data Protection Act are some of examples of the above. Regulators across sectors are also fast implementing the digital mandate and single window system of obtaining permits and licences for businesses is now applicable in most parts of India. The reporting and compliance requirements which used to be in physical until a few years ago are now slowly moving completely digital. The changing regulatory landscape is likely to significantly increase compliance burden amongst companies and legal teams and lawyers would need to be updated and keep up with these developments.
- Focus on Alternate Disputes Redressal Methods– On account of virtual hearings and hybrid working systems, the backlog of the courts in India will only increase. Going forwards the courts are also likely to move to a more process oriented and timebound resolution approach viz. submission of evidence and proof versus lengthy interpersonal negotiations (similar to what we observe in case of international arbitrations), however this shift is likely to take atleast few years giving the complex judicial systems in India. Until such time, we it is likely that alternate dispute methods will be the preferred choice by contracting parties. Methods like mediation and out of court settlements are also likely to prevail in most cases. In the Indian context as well, we are observing, Indian clients being willing to choose alternate methods of dispute resolution including international arbitration with neutral international venue for contracting parties.
As the world learns to live with Covid-19, some of the existing systems would also need to evolve or change to keep pace with the shifting landscape. Set out above are only some of the examples of certain elements of deal making which have witnessed a shift. As we move along, new processes will evolve and we would need to learn to accept and implement as well. Technology acceptance and implementation is also being undertaken at a rapid pace and what used to be a luxury few years ago has now become a necessity. Deal makers especially lawyers will need to embrace technology in this ever evolving and shifting landscape of deal making to stay ahead of the curve.
View expressed are personal in nature and should not be considered as advice of the firm. The author is an Associate Partner at DSK Legal and can be contacted at [email protected].