Many companies that agreed to but didn't finalize deals to acquire, merge with or invest in other businesses before the Covid-19 crisis swept across the globe find themselves in a bind, unwilling to complete their deals at pre-pandemic prices but faced with sellers who demand they do exactly that. In many such cases, a court will decide the path forward, dissecting the deals' contractual language to weigh the pandemic's role.
"The coronavirus pandemic has already quashed a number of previously announced deals," according to Mergers & Acquisitions magazine. "More deals are expected to fail, as companies focus on preserving cash and ensuring debt access."
With the business travel industry among the sectors hardest hit by the pandemic, a few deals already have fallen apart or are in danger of doing so.
Payment solutions supplier Wex Inc. in May announced it no longer wished to proceed with the $1.7 billion acquisition of virtual travel card providers eNett from majority owner Travelport and minority equity investor Optal, while also acquiring Optal itself. Wex in January had agreed to the deal, with closing expected by mid-year.
According to Wex, the pandemic qualifies as a "material adverse effect," a contractual term that enables either party to cancel should a particular event or development financially harm one of the parties.
"When we began discussions last fall, the strategic rationale for entering into this transaction was very strong," Wex CEO Melissa Smith said during a conference call. "However, we've concluded that the pandemic and the conditions arising in connection with it have had and continue to have a material adverse effect on the businesses of eNett and Optal."
Travelport, however, has no intention of letting Wex off the hook. The company, according to Bloomberg, has filed suit in a U.K. court to force Wex to complete the agreed-to transaction.
Travelport and Optal in a statement said their eNett purchase agreement with Wex was inked "after Covid-19 had already publicly begun its spread across the globe" and "expressly excludes the effects of a pandemic from the definition of Material Adverse Effect."
Amex GBT Heads to Court
The question of the pandemic's qualification as a material adverse effect also plays a significant part in a dispute between the part owners of American Express Global Business Travel and a group that had announced a significant investment in the mega travel management company. Like Wex and Travelport, the dispute will be settled in court, in this case a Delaware chancery court.
Amex GBT is an evenly split joint venture between American Express and Juweel, a group of investors led by Certares Management. In December 2019, Amex GBT announced new investors in the Juweel half of the venture, including Carlyle Global Partners and GIC, the government of Singapore's foreign investment arm.
Carlyle and GIC now want out of the deal. Carlyle contends that a material adverse effect has taken place, but Juweel disputes that and wants the court to require the transaction to close by June 30.
Juweel in a statement to Travel Procurement publication portfolio mate The Beat noted Carlyle's "claims are entirely pretextual; the global pandemic was already well underway when Carlyle and GIC moved to back out of their legal obligations just prior to closing."
Sabre Ends Farelogix Pursuit
One would-be industry acquisition has gone belly-up for reasons at least tangentially related to the pandemic. Sabre's 18-month quest to buy Farelogix ended on April 30 after Sabre walked away from the deal, a few weeks after the U.K. Competition and Markets Authority's decision to block the transaction as anti-competitive.
While Sabre could appeal the U.K. regulator's decision, even if successful the $360 million price tag for Farelogix looks quite different in a pandemic environment than it did when Sabre signed the deal in November 2018.