Archive for the ‘Economic Impact of Coronavirus Pandemic’ Category

The COVID-19 Recovery will be digital: A plan for the First 90 Days

Report: Joel T. Shertok, PhD


“McKinsey Digital” – 5/14/20

By Aamer Baig, Bryce Hall, Paul JenkinsEric Lamarre, and Brian McCarthy


1 – Most C-suite executives have led their companies to digitize some part of their business to protect employees and serve customers facing mobility restrictions.

2 – We have vaulted five years forward in consumer and business digital adoption in a matter of around eight weeks. 

3 – WE need to confront three structural changes that are playing out: a – customer behaviors and preferred interactions have changed significantly; b -as the economy lurches back, demand recovery will be unpredictable; c – many organizations have shifted to remote-working models almost overnight.

4 – Customers have already migrated to digital. Employees are already working fully remotely and are agile to some degree. Companies have already launched analytics and artificial-intelligence (AI) initiatives in their operations.

5 – Companies must adapt: they must reimagine customer journeys to reduce friction, accelerate the shift to digital channels, and provide for new safety requirements.

6 – CEOs should ask their business leaders to assess how the needs and behaviors of their most important customers have changed and benchmark their digital channels against those of their competition.

7 – Modern businesses have several forecasting and planning models to guide such operational decisions. Organizations will need to validate these models.

8- As companies construct these models, analytics teams will likely need to bring together new data sets and use enhanced modeling techniques to forecast demand and manage assets successfully.

9 – The chief analytics officer should mobilize an effort to inventory core models and work with business leaders to prioritize them based on key operations and their efficacy drift.

10 – Two features of a modern technology environment are particularly important and can be rapidly implemented: a cloud-based data platform and an automated software-delivery pipeline.

11 – Companies that have led the way in adopting flatter, fully agile organizational models have shown substantial improvements in both execution pace and productivity. 

12 – Leaders who want to succeed in the digital-led recovery must quickly reset their digital agendas to meet new customer needs, shore up their decision-support systems, and tune their organizational models.



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The Impact Of The Coronavirus Crisis On Mergers And Acquisitions

Reporter – Dr. Joel T. Shertok


The Impact Of The Coronavirus Crisis On Mergers And Acquisitions

By Richard D. Harroch, David A. Lipkin, and Richard V. Smith

Forbes – April 17, 2020

The coronavirus (COVID-19) crisis is having and will continue to have a material global impact on mergers and acquisitions (“M&A”). On a massive scale and in a very short period of time, hundreds of thousands of businesses have shuttered or cut back their operations significantly, millions of workers have been laid off or furloughed, consumer spending has been drastically reduced, supply chains have been disrupted, and demand for oil and other energy sources has plummeted.

The M&A world has endured and recovered from past economic crises, including the burst of the dot-com bubble in 2000-2002 and the Great Recession of 2007-2009. As in past financial and economic crises, uncertainties in the business and capital markets have already contributed to buyers delaying or cutting back on their acquisition plans. But this time things are different—the impact of the pandemic is not just on the financial system generally, the valuation of sellers, and the appetite of buyers to get deals done in the short term, but on a multitude of other factors affecting M&A deals.

These include deal terms themselves, new due diligence issues that have arisen, the manner in which due diligence is conducted, the availability, pricing and other terms of deal financing, and the time it will take to obtain necessary regulatory and other third-party approvals for transactions.

Two business men shaking hands
We discuss how the pandemic will impact M&A dealmaking for the foreseeable future, and how both … [+] © RA2 STUDIO-ADOBE STOCK

Moreover, unlike in past crises that have affected M&A deals and activity, this time there has also been a sea change in the manner in which M&A transactions are developed and negotiated. With all of the principal players working remotely, the effective use of new and creative collaborative tools, technologies and techniques have become more critical as buyers, sellers, providers of M&A financing, and all of their respective legal and financial advisors adjust to the changed environment.

In this article, we will discuss how the foregoing factors and others have already impacted M&A dealmaking and will likely continue to impact the M&A world for some time to come, including how buyers and sellers can each adjust to the changed circumstances to help minimize their exposure to the business risks resulting from the pandemic.

1. M&A Deal Activity

Global mergers and acquisitions have already plummeted as result of the coronavirus crisis, and by the end of March 2020 had reached a near standstill. M&A levels in the United States fell by more than 50% in the first quarter to $253 billion compared to 2019, but most of those transactions were entered into or closed earlier in the quarter before the crisis spread worldwide.

Among other things, executives of companies that would typically have been strategic buyers have been forced to redirect the focus and energy of their teams toward the immediate health of their own companies and away from longer term goals that include pursuing growth through acquisition strategies. Similarly, private equity sponsors have spent an increasing amount of time on efforts to strengthen or save their existing portfolio companies, at the expense of new deal activity.

Parties to pending M&A transactions are also abandoning significant deals that were pending, such as Xerox recently dropping its $34 billion offer for HP, after having postponed meetings with HP shareholders to focus on coping with the coronavirus pandemic. SoftBank has terminated its $3 billion tender offer for WeWork shares, citing the coronavirus impact together with the failure of a number of closing conditions. Bed Bath & Beyond has initiated litigation in Delaware with respect to delays in the pending sale of one of its divisions to 1-800-Flowers for $250 million. Boeing suppliers Hexcel and Woodward have called off their pending $6.4 billion merger of equals transaction noting the “unprecedented challenges” caused by the pandemic. Investment bankers report that most new sell-side assignments are being put on hold until things stabilize.

Of course, certain industries that have been disproportionately affected by the pandemic, such as travel and leisure, transportation, and oil and gas, may see upticks in M&A activity in 2020 as buyers see opportunities for bargains in these sectors. The existing M&A pipeline is thin, and the percentage of transactions involving rescue deals, restructurings, and distressed sellers will likely increase, both in dollar terms and as a percentage of overall M&A activity.

2. Timing and Delay in M&A Deals

For both existing M&A deals that survive the pandemic and new deals entered into during the pandemic, it is expected that deal timelines will be significantly extended. Each stage of a typical transaction, including preliminary discussions between the parties, the negotiation of letter of intent or term sheet, the negotiation of a definitive acquisition agreement, and the pre-closing period, will likely take longer to accomplish. These delays will result from a number of pandemic-related factors, including the following:

  • Negotiations will take longer: the overused adage of “getting everyone in the room” to get a deal agreed is not currently possible.
  • Due diligence will take longer, and new M&A due diligence issues will need to be addressed.
  • Third-party consents (such as from landlords, customers, and intellectual property licensors) will take longer to obtain.
  • There will be delays in obtaining any necessary antitrust or other regulatory approvals. The Department of Justice has asked firms involved in mergers and acquisitions to add 30 days to their deal timing agreements, and European competition regulators have suspended investigations of a number of proposed deals.
  • Buyers and their boards of directors are going to be much more cautious, and internal justifications for dealmaking in this environment will need to be more compelling.
  • M&A agreement terms will take longer to negotiate as buyers will want to shift more closing risk and (where applicable) indemnity risk to sellers, and sellers will seek comfort that the persistence of the pandemic will not permit buyers to walk away from deals based on “buyer’s remorse.”
  • Buyers will have concerns about their ability to properly value a seller in this environment. Valuations from comparable transactions, even those entered into very recently, will likely be no longer applicable.
  • Buyers requiring financing will encounter delays resulting from the unsettled state of debt markets and available liquidity, and M&A lenders may seek closing conditions that are even more stringent than those sought by buyers, increasing closing risk for both buyers and sellers.

3. Impact on Letters of Intent

Letters of intent, term sheets, memoranda of understanding, and the like are a common feature of the M&A landscape. Before investing heavily in due diligence and negotiating detailed transaction documents, buyers and sellers typically employ these preliminary, largely non-binding documents to memorialize their mutual understanding of all or some of the material deal terms. Further, since a grant of exclusivity by the seller (which frequently accompanies the execution of a letter of intent or completion of a term sheet) shifts negotiating leverage considerably in favor of the buyer, the seller will desire to nail down as many major deal terms as possible at this stage of the M&A process. Of course, it also is not unusual for a negotiated letter of intent or term sheet to address the purchase price and little else.

In light of the coronavirus pandemic, we expect to see buyers and sellers alike refraining from entering into (or even negotiating) a traditional letter of intent until the buyer first has performed incremental due diligence on the degree to which COVID-19 has adversely affected the seller’s business, results of operations, financial condition, customers, suppliers, workforce, and business prospects. The length of this period of incremental due diligence will depend upon the seller’s circumstances and the parties’ relative bargaining power. A buyer can expect the seller to push hard for a short period while resisting concurrent exclusivity.

Once the letter of intent negotiation begins, buyers should expect sellers (in the context of the pandemic) to attempt to include in the letter of intent provisions relating to closing conditions (including the scope of the material adverse effect definition), pre-closing covenants and drop dead dates (which are discussed in more detail below). For most letters of intent, these are unusual provisions. But during the pandemic, thoughtful sellers will want to take advantage of any bargaining leverage they have to address closing risk and closing certainty.

Buyers will feel justified in seeking longer periods of exclusivity than in the recent past since the pandemic poses new due diligence challenges. Until now, sellers—especially in the technology sector—in many instances had been successful in keeping exclusivity periods to 30-45 days or so (and sometimes even less). Now, it will be more common to see buyers insisting upon at least 60-75 days, with the ability to extend, in anticipation of coronavirus fallout interfering with or delaying the buyer’s due diligence investigation. In turn, well-advised sellers will seek provisions terminating exclusivity at the first sign that the buyer may be unwilling to proceed with the transaction on the terms set forth in the letter of intent or term sheet.

4. Availability and Terms of Debt Financing to Fund Acquisitions

Traditionally, a significant percentage of M&A deals are financed partially through debt, particularly in the private equity space. The volatility in the financing markets brought about by the coronavirus crisis has created challenges for transactions that depend on third-party debt financing, including injecting a fair amount of uncertainty about the availability and terms of such debt financing. The new financing-related questions and challenges facing buyers/borrowers will include the following:

  • Will lenders underwrite new financing commitments?
  • Will the buyer’s committed debt financing actually be available when the time comes to close the acquisition?
  • Will lead lenders whose commitments are conditioned on spreading the risk among a group of lenders have greater difficulty in syndicating the debt?
  • Will lenders be willing to conform their closing conditions to the closing conditions in the acquisition agreement, or will they insist on more stringent terms (such as the ability to declare a “material adverse effect” even if the buyer is willing to proceed with the transaction)?
  • Will the lenders increase pricing due to the risks of the coronavirus crisis, and insist on tighter financial covenants, increasing the risk of future events of default?
  • Will the amount of debt leverage available be decreased from the levels that had been customary in recent times, requiring private equity buyers to inject more equity into buyouts?
  • What additional due diligence will a lender insist upon, and how much delay will that involve?
  • How marginally risk averse will lenders be in acquisitions involving industries particularly hard hit by the crisis?
  • What obligations will buyers have in the event they cannot close a deal if debt markets become illiquid and lenders are unable to lend, and what remedies will sellers have in this circumstance? Will we see an increase in buyers seeking to use “reverse financing termination fees” in private company transactions to limit their financial exposure for broken deals?
  • Will lenders have a renewed focus on the “outside date” in their financing commitments and loan agreements, and potentially require increased payments for any commitment extension?

5. Effect on Dealmaking and Deal Terms

Invariably, when there is significant economic or other uncertainty in the world of M&A dealmaking, leverage shifts toward buyers and away from sellers. This was certainly the case with respect to dealmaking in the context of the burst of the dot-com bubble and dealmaking in the context of the Great Recession.

There is no reason to believe that it will be any different this time, in the context of the coronavirus pandemic. While strategic and private equity buyers are of course facing their own business and operational challenges, many continue to be “cash-rich” and generally can afford to bide their time to find the right acquisition targets at the right price.

Although public stock valuations have declined significantly since the end of February 2020, and the number of deals using all-stock or part-stock consideration had increased in the last few years, cash continues to be king in the dealmaking world. Many buyers continue to have plenty of “dry powder,” and the immediate slowdown in dealmaking as the crisis took hold in March 2020 will only serve to increase the relative leverage of buyers as the crisis continues to unfold.

Of course, some buyers may conclude that some of the cash that they would otherwise have used for M&A should be used for other obligations, including financing their own operating costs and replacing their own revenue lost as a result from the crisis.

Inevitably, as in past crises, the effect on deal pricing will not be uniform—sellers in industries that have been more significantly impacted by the pandemic (including retail, hospitality, travel, coworking spaces, and automobile and aircraft production) will be more significantly impacted than others (such as cloud computing, software, videoconferencing, other online technologies, biotech, food delivery, and online shopping) that have either been less impacted or have even thrived during the crisis.

To be sure, an increase in leverage for buyers in M&A dealmaking generally should not be misconstrued as suggesting that buyers will now be more likely to prevail in negotiating each individual deal term. Sellers will strenuously pursue deal terms that protect them from closing uncertainty, arguing that buyers in future deals will have had their “eyes open” about the pandemic and its consequences when they enter into acquisition agreements. While the pandemic (at least in the United States) was arguably not “foreseeable” when deals were entered into prior to March 2020, it certainly has become not only foreseeable, but the most significant factor in dealmaking since then.

In contrast, with respect to deals signed before the crisis unfolded that have not yet closed, buyers may have a degree of leverage to seek to terminate and walk away from deals, or renegotiate deal terms because of the effect of the pandemic on the ability of the seller to perform its pre-closing covenants and satisfy the buyer’s closing conditions.

The following is a summary of a number of M&A deal terms that have already been implicated by the coronavirus crisis, or with respect to which deal negotiations will likely be impacted by the crisis:

“Material Adverse Effect” Provisions.In most M&A transactions, the acquisition agreement has traditionally included a term commonly known as the “material adverse effect” (“MAE”) or “material adverse change” definition. The most important use of this definition is in the closing conditions—the buyer is not obligated to close the acquisition if the seller has suffered an MAE since the signing of the acquisition agreement (or the date of the seller’s most recent financial statements). The MAE provision seeks to allocate between the parties the risk of certain negative circumstances occurring or existing during the relevant period.

The question of whether a significant event such as the coronavirus pandemic constitutes an MAE depends on the specific contractual language used in the clause, as well as the current (or reasonably anticipated) impact of the pandemic on the seller’s business. There is a good deal of variation among MAE clauses, but they typically include these two components:

  • First, MAE clauses frequently include a number of “carve outs,” which the parties agree in advance will not constitute an MAE. Some common examples include conditions affecting the industry in which the seller operates, the U.S. economy or financial markets or any foreign markets or any foreign economy or financial markets in any location where the seller has material operations or sales, and acts of God, calamities, acts of war or terrorism, or national or international political or social conditions.
  • Second, they often include an exception to certain carve-out provisions, providing that the carve out only applies to the extent that the adverse effect of the identified matter (e.g., an act of God) does not “disproportionately” adversely affect the seller compared to other companies in the same industry.

Prior to the outbreak of COVID-19, if an MAE provision had included a carve out specifically referencing an “outbreak,” “epidemic,” “pandemic,” or other similar medical event, then the coronavirus pandemic would pretty clearly not constitute an MAE with respect to such transaction (although the “disproportionality” clause could enable a buyer to still declare an MAE if the seller has been affected more than its competitors by the pandemic). However, historically only a relatively small percentage of acquisition agreements have included terms that specifically reference such dangers to public health.

Courts have traditionally construed MAE clauses very narrowly, and few buyers have successfully terminated M&A transactions on the basis of such provisions. In Delaware, for example, an event will only constitute an MAE if it “substantially threaten[s] the overall earnings potential of the target in a durationally-significant manner.” Thus, the question of whether the effects of the COVID-19 pandemic may constitute an MAE (where it is not specifically carved out from the definition) may depend on the ultimate duration of the crisis and the persistence of its effect on the seller in question.

In future deals, some buyers will likely seek to include specific contractual language, providing that the COVID-19 pandemic is itself an MAE, or at least seeking to exclude it from the carve outs. But just as surely, sellers will take the position that the pandemic represents a known risk that the buyer should fairly have taken into account in valuing the seller’s business and proceeding with the transaction. Certainly, at a minimum, buyers will likely insist on the inclusion of the disproportionality clause, so that they are protected against adverse pandemic-related developments that ultimately are not industry-wide but rather limited to (or with greater impact on) the particular seller.

Pre-Closing Business Covenants.M&A transactions that require regulatory approvals or third-party consents usually provide for a period of time between signing and closing during which such approvals and consents are pursued and obtained. During this period, the seller is required to continue to operate in the ordinary course of business, and to comply with a number of other business covenants. These obligations may be absolute, or the seller may be required only to use commercially reasonable efforts to comply with them. There are commonly permitted deviations from the covenants in order for the seller to comply with applicable law, to comply with the acquisition agreement, to carry out a directive from the buyer, or to take actions that have been pre-approved by the buyer.

One of the closing conditions is invariably that the seller has complied (or complied in all material respects) with these pre-closing covenants. Moreover, in private company deals where the buyer is entitled to post-closing indemnification, a breach of the pre-closing business covenants likely will be one of the indemnifiable matters.

The rationale for requiring these covenants is solid: the buyer wants the seller to protect and maintain the business being acquired, and thus wants the right to veto any actions or decisions by the seller that may threaten the value of the business. The seller, on the other hand, wants to continue to control the business in the manner that it sees fit (particularly given that the transaction may ultimately not be consummated), and minimize the likelihood that closing conditions may not be satisfied. For deals with purchase price adjustment provisions (based on closing working capital or other financial metrics), the seller also wants to run the business in a manner that minimizes the risk of a negative purchase price adjustment.

In the case of transactions entered into before the COVID-19 pandemic became generally known, the pandemic may result in the seller being incapable of complying with one or more of these covenants, including restrictions on workforce reductions, restrictions on capital or other expenditures, prohibitions on material changes to personnel policies, and prohibitions on changes in compensation or benefits. Where there is an exception for matters “required by law,” the seller may be able to argue that shelter in place orders and similar governmental edicts permit it to deviate from these covenants.

For new transactions, the extent to which the performance of the seller’s pre-closing covenants may be excused by the effects or consequences of the pandemic will be a hotly contested topic. The seller will want comfort that reasonable (or required) steps it takes in response to the pandemic are not breaches of the acquisition agreement. Sellers will want to be able to respond quickly and decisively to the pandemic, without fear of breaching the acquisition agreement. In contrast, the buyer may argue that notwithstanding this, it should not ultimately be required to acquire a seller whose business and prospects at the time of closing have significantly deteriorated, whatever the cause. Having the buyer pre-approve the seller’s contingency plans in response to the pandemic could help avoid misunderstandings and disagreements on these topics.

“Drop-Dead” Dates and Termination Provisions.Another common feature of an M&A transaction with a delayed closing is the inclusion of a “drop-dead” date in the acquisition agreement. This is a particular date, typically several weeks (or months in the case of deals with potential regulatory issues) after the intended closing date, after which either party may terminate the agreement without consequence as a result of an unforeseen delay. If, for example, the closing of the deal has been unforeseeably delayed by the failure to obtain required antitrust or other regulatory approvals, or third-party consents, either party may terminate the transaction after the drop-dead date, provided that its own breach has not caused the delay.

The coronavirus crisis will cause both buyers and sellers to reconsider (and likely extend) the period of time between signing and the drop-dead date. Federal, state, and foreign governments have seen their operations, including their ability to complete M&A regulatory analyses, significantly impacted by the pandemic, delaying the turnaround times for such reviews and deal approvals.

With respect to transactions where the acquisition agreement was entered into before the COVID-19 pandemic but the transaction has not closed, the passage of the drop-dead date may provide an opportunity for a buyer with second thoughts about the deal to freely terminate the transaction. While the seller might believe it is unfair for the buyer to benefit from the unforeseen regulatory delay, the fact is that the possibility of such a delay is why the drop-dead provision was included in the first place.

Working Capital and Other Price Adjustment Provisions. Many private company M&A transactions include purchase price adjustment provisions based on the amount of the seller’s cash and indebtedness at closing. There is also typically a purchase price adjustment based on a comparison of the level of the seller’s working capital at closing to a target amount of “normalized” working capital. For transactions that were already signed (but not closed) before the coronavirus crisis, such adjustment provisions may result in reductions at closing to the net purchase price that the seller had previously expected to receive. For transactions yet to be signed, the COVID-19 pandemic will undoubtedly result in changes to practices associated with these provisions.

The question of what level of working capital is appropriate will likely be subject to new levels of scrutiny by buyers in light of the pandemic. Buyers may seek greater levels of normalized working capital (to help assure there will be sufficient working capital for the continued operations of the acquired business following the transaction in light of reduced revenues and new categories of expenditures). Sellers that become illiquid as a result of the crisis may also come under pressure from buyers to leave behind a portion of the purchase price credit they would otherwise have received for their closing cash balances.

The desire to avoid such price reductions may lead sellers to propose that the working capital-based price adjustment provisions be “collared” so that there is a band (above and below the agreed level of normalized working capital) within which the price reduction does not kick in, but buyers may be reluctant to accommodate such requests. The need to negotiate these types of new and more complex provisions may further delay transactions.

Alternative Forms of Consideration.The financial crisis associated with the COVID-19 pandemic will likely result in both downward pressures on deal values and a greater focus on the possible use of stock consideration in lieu of (or supplemental to) the buyer’s cash, as well as pricing structures involving earnouts or milestone payments.

These alternative forms of consideration traditionally become more prominent whenever, as a result of a financial crisis, there is a reduction in equity values that creates a fundamental disconnect between the price expectations of buyers and sellers. In the case of public buyers that have seen the pandemic reduce their market capitalizations, the use of their stock as acquisition consideration (where the seller has also lost value) may help to bring the parties together from a valuation perspective. Similarly, earnout and milestone structures, notwithstanding their complexities and flaws, could help enable buyers and sellers that cannot agree on valuation to reach an understanding that enables each party to feel that it is fairly sharing in the risks and uncertainties, and possible benefits, of the seller’s future performance.

Antitrust and Other Regulatory Approvals. Like other participants in M&A transactions, for the duration of the crisis it appears that most regulators will be working remotely, and paper filings will be discouraged or prohibited. This and other factors have severely disrupted the ordinary procedures for reviewing and approving transactions. For example, the Department of Justice and the Federal Trade Commission (FTC), after implementing an e-filing system for deal notifications under the Hart-Scott-Rodino Act, initially suspended the practice of granting early termination of the 30-day waiting period. The FTC has announced delays of several months in a number of high-profile administrative antitrust merger challenges, citing disruptions caused by the coronavirus outbreak. The speed at which regulators are able to adapt to the new environment and make continued changes in their procedures will be an important factor in dealmaking for buyers, sellers, and their legal and financial advisors.

Subsequently, the U.S. antitrust agencies announced that they would begin to allow early terminations on a limited basis, but also made clear that they would resolve any doubts in favor of not granting early termination. However, parties to transactions that do have antitrust implications may continue to expect routine clearance at the end of such period. It also can be expected that the agencies more frequently will ask parties to pull and refile notifications in order to give the agencies an additional 30 days to complete their review. International competition authorities, particularly in the European Union, have also significantly altered their deal review procedures in light of the pandemic.

For transactions that receive “second requests” from U.S. antitrust authorities, parties should expect that the crisis will add an additional two to three months to the already lengthy process of responding and resolving the regulatory concerns. Already several significant M&A transactions, including a generics merger between Pfizer’s Upjohn unit and Mylan, and a $63 billion merger of AbbVie and Allergan, have been delayed or postponed as a result of these regulatory developments.

For sensitive transactions involving foreign investment that must be cleared by the inter-agency committee known as the Committee on Foreign Investment in the United States (CFIUS), the relevant agencies are struggling with their caseload due to work-at-home requirements. The percentage of M&A transactions requiring CFIUS reviews has increased significantly as a result of the expansion of the scope of CFIUS coverage since 2018. One unique and critical challenge is that government officials are not permitted to access classified information from home or other remote locations. As a consequence of this and other related factors, in certain cases such agencies simply have not been commencing official CFIUS reviews during this period, and for deals where the official review has commenced, lengthy delays in obtaining clearance can be expected.

Representations and Warranties.The pandemic will lead to a demand by buyers for a number of additional focused representations and warranties from the seller, and associated disclosures, including with respect to the following areas:

  • The effects and consequences of the pandemic on the financial condition, results of operations, and prospects of the seller;
  • The seller’s compliance with applicable laws and governmental orders relating to the pandemic and development of contingency plans and processes to ensure business continuity;
  • The effect of the pandemic on the seller’s workforce, supply chain, inventory, accounts receivable, ability to perform material contracts, and solvency;
  • The potential availability to the seller of loans and other financial assistance associated with the pandemic;
  • Full or partial business closures (whether mandated by the government or as a result of changes in demand for the seller’s goods and services); and
  • The ability of the seller to adjust its business practices to minimize the short-term and long-term effect of the pandemic on its business.

The purpose of such enhanced representations and warranties, from the standpoint of the buyer, is to give the buyer a potential right to walk away from the deal if it were to learn before closing that such representations and warranties were untrue when made or have become untrue with the passage of time, and (in private company transactions) to enhance the buyer’s post-closing indemnification remedies associated with inaccuracies in the seller’s representations and warranties.

Of course such enhanced disclosures also serve to assist the buyer in effectively integrating the seller’s operations with its own, which will now include the new challenge of understanding the manner in which the seller has responded to the pandemic so that its response can be effectively melded with the buyer’s own response as quickly as possible following the closing.

Indemnity and Escrow Provisions; Representation and Warranty Insurance.In private company acquisitions, it is expected that the coronavirus crisis will put upward pressure on the size (typically expressed as a percentage of deal value) of indemnity escrows or holdbacks. This may be particularly the case in transactions where a seller has been successful in maintaining its expected top-line price notwithstanding the pandemic. In return for agreeing to such a “high” value, the buyer it is expected that the buyer may attempt to shift to the seller more of the risk of any breach by the seller of the acquisition agreement. In addition, it is expected that buyers will be less reticent to ask for “special indemnities” when they identify a particular risk in the seller’s business, and the post-closing consequences of such risk are less foreseeable or predictable as a result of the pandemic.

For private company acquisitions (primarily those involving private equity buyers) where representation and warranty insurance has become more prevalent in recent years, it is important to understand that insurers have been developing new underwriting policies and procedures to address the business risks of the pandemic. In certain cases, these new policies may exclude coverage for representations and warranties focused on pandemic-related topics. Insurers may also be increasingly reluctant to cover certain categories of buyer losses, including business interruptions and other consequences of the pandemic, consistent with their long-standing practice of seeking to exclude “known risks” from policy coverage. Predictably, representation and warranty insurers, just like buyers, will also likely insist on enhanced or extended diligence before underwriting policies.

If buyers that would otherwise rely solely or primarily on representations and warranty insurance start to perceive that they are not receiving appropriate coverage for deal-related risks, they may bring pressure on sellers to contribute increasing amounts to indemnity escrows or holdbacks as a backup to the insurance. Premiums also may increase as a result of these developments, which could contribute to an increasing percentage of deals where parties choose to utilize traditional escrow and holdback arrangements, rather than turning to insurance.

6. New M&A Due Diligence Issues

Acquirers are undertaking significant additional due diligence to assess the effect of the coronavirus crisis on the seller’s business. The expanded due diligence issues include the following:

  • In a world where physical contact is next to impossible, what strategies should the buyer implement to get to know the seller’s management and key employees? What can the buyer do to get comfortable without a physical visit/inspection?
  • What is the seller’s cash position? Does it have enough liquidity to fund its near-term obligations?
  • Are the seller’s revised financial projections reasonable and believable?
  • How has the seller’s workforce been impacted by the coronavirus? Does the seller have enough employees and third-party contractors to successfully continue its business?
  • Has the seller complied with federal and state laws in connection with furloughs and layoffs?
  • What is the cost to the seller of continuing to provide health care benefits to furloughed workers?
  • Has the seller defaulted on key contracts and/or leases?
  • Who are the counterparties to the seller’s key contracts and are they performing under those contracts?
  • What are the termination rights under key contracts? Do the seller’s contracts include “force majeure” clauses that may enable it or the counterparty to terminate the agreement or suspend performance or payment?
  • Is the seller in compliance with financial covenants and other terms of debt instruments?
  • Has the seller been able to work with landlords to defer rent payments? Has the seller started to search for alternative, lower cost space to rent?
  • Is the seller overly dependent on suppliers in certain geographic regions hard hit by the coronavirus?
  • What is the financial condition of the seller’s key customers?
  • What are the risks on collectability of accounts receivable?
  • What insurance (including business interruption insurance) does the seller have available to cushion losses? Are those losses insured if they are consequences of the coronavirus pandemic, or are they subject to policy exceptions? Have claims been made to the insurers?
  • What long-term liabilities does the seller have and will the seller be able to satisfy them?
  • Are there solvency or going concern risks?
  • Are there sufficient business continuity plans and crisis management procedures?
  • Who are the key employees? What happens to the seller’s business (and its value to the buyer) if they succumb to COVID-19?
  • What is the seller’s ability to control or reduce operating expenses? What contracts is the seller attempting to renegotiate to lower expenses?
  • What is the effect of “working from home” for employees (e.g., data privacy and privacy breaches)? What expenses is the seller incurring to provide equipment to employees working from home?
  • What IT, cybersecurity, and data breach issues has the seller encountered? Has the seller had problems with hackers interfering with video conferences or taken steps to prevent that risk?
  • Is the seller at risk of having insufficient inventory or parts?
  • Is the seller able to take advantage of the favorable loans under the Coronavirus Aid, Relief, and Economic Security (CARES) Act? If so, what are the terms of these loans and how do they affect the buyer’s plans and expectations going forward?
  • Is the seller in compliance with federal, state, and local orders related to the pandemic?
  • Is the seller in compliance with health and safety laws with respect to its workplaces and employees in light of the danger posed by the pandemic?
  • If all or a portion of the seller’s workforce is unionized, what is the state of relations between the union(s) and the seller? Is there a strike or walk-out risk?

7. The WARN Act and Consequences of Layoffs and Furloughs

The coronavirus crisis has led a significant number of employers across the country to seek to control costs through massive workforce reductions and furloughs. Over 20 million new applications for unemployment payments have been filed just within the last few weeks. Companies considering these reductions and furloughs must consider the impact of the Worker Adjustment and Retraining Notification (WARN) Act, and careful compliance with relevant federal and state laws impacting employment will be particularly critical for sellers considering participating in M&A in the near future. The WARN Act generally requires employers to provide written notice at least 60 days in advance of significant layoffs or other covered activities (such as plant closures), or pay in lieu of such notice.

Layoffs of less than six months in duration do not constitute a mass layoff under the WARN Act. But since coronavirus-related reductions in force may, at least initially, be of uncertain duration, sellers will need to be careful to comply as soon as practicable if a delay in reactivating a furloughed workforce brings the WARN Act into effect.

The Warn Act sets forth certain exceptions that may affect its applicability to sellers that would otherwise be covered by its terms in the context of the coronavirus crisis. There is an “unforeseeable business circumstances exception” that applies to reductions in force that are made based on changes in the business environment that were not reasonably foreseeable at the time when the written notice would otherwise have been required to be given, such as circumstances “caused by some sudden, dramatic, and unexpected action or condition outside the employer’s control.” There is also a “natural disaster exception” that covers “floods, earthquakes, droughts, storms, tidal waves or tsunamis and similar effects of nature.”

Employers that would otherwise be covered by the WARN Act could potentially take the position that the pandemic qualifies for one or both of these exceptions. However, the safer course of action, particularly for a company involved or likely to be involved as a seller in an M&A transaction, is to simply comply with the WARN Act, as the buyer in the transaction may predictably not wish to run the risk that a claim of an exception might be challenged by the government for affected employees following the closing. Compliance with employee-related laws and regulations will clearly be an area of increased due diligence by buyers in the new business environment.




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When Will Life Be Normal Again? We Just Don’t Know

Reporter: Joel T. Shertok, PhD


Many Americans have been living under lockdown for a month or more. We’re all getting antsy. The president is talking about a “light at the end of the tunnel.” People are looking for hope and reasons to plan a return to something — anything — approximating normalcy. Experts are starting to speculate on what lifting restrictions will look like. Despite the relentless, heroic work of doctors and scientists around the world, there’s so much we don’t know.

We don’t know how many people have been infected with Covid-19.

We don’t know the full range of symptoms.

We don’t always know why some infections develop into severe disease.

We don’t know the full range of risk factors.

We don’t know exactly how deadly the disease is.

We don’t have answers to more detailed questions about how the virus spreads, including: “How many virus particles does it even take to launch an infection? How far does the virus travel in outdoor spaces, or in indoor settings? Have these airborne movements affected the course of the pandemic?”

We don’t know for sure how this coronavirus first emerged.

We don’t know how much China has concealed the extent of the coronavirus outbreak in that country.

We don’t know what percentage of adults are asymptomatic. Or what percentage of children are asymptomatic.

We don’t know for certain if the virus will subside as the Northern Hemisphere enters the warmer months of spring and summer, as other viruses do. The director of the Centers for Disease Control and Prevention is bullish. Other experts, not so much.

We don’t know the strength and duration of immunity. Though people who recover from Covid-19 likely have some degree of immunity for some period of time, the specifics are unknown.

We don’t yet know why some who’ve been diagnosed as “fully recovered” from the virus have tested positive a second time after leaving quarantine.

We don’t know why some recovered patients have low levels of antibodies.

We don’t know the long-term health effects of a severe Covid-19 infection. What are the consequences to the lungs of those who survive intensive care?

We don’t yet know if any treatments are truly effective. While there are many therapies in trials, there are no clinically proven therapies aside from supportive care.

We don’t know for certain if the virus was in the United States before the first documented case.

We don’t know when supply chains will strengthen to provide health care workers with enough masks, gowns and face shields to protect them.

In America, we don’t know the full extent to which black people are disproportionately suffering. Fewer than a dozen states have published data on the race and ethnic patterns of Covid-19.

We don’t know if people will continue to adhere to social distancing guidelines once infections go down.

We don’t know when states will be able to test everyone who has symptoms.

We don’t know if the United States could ever deploy the number of tests — as many as 22 million per day — needed to implement mass testing and quarantining.

We don’t know when we’ll be able implement full-scale serological testing.

We don’t know if full-scale serological testing will accurately determine immunity.

We don’t know if we can implement “test and trace” contact tracing at scale.

We don’t know whether smartphone location tracking could be implemented without destroying our privacy.

We don’t know if or when researchers will develop a successful vaccine.

We don’t know how many vaccines can be deployed and administered in the first months after a vaccine becomes available.

We don’t know how a vaccine will be administered — who will get it first?

We don’t know if a vaccine will be free or costly.

We don’t know if a vaccine will need to be updated every year.

We don’t know how, when we do open things up again, we will do it.

We don’t know if people will be afraid to gather in crowds.

We don’t know if people will be too eager to gather in crowds.

We don’t know what socially distanced professional sports will look like.

We don’t know what socially distanced workplaces will look like.

We don’t know what socially distanced bars and restaurants will look like.

We don’t know what a general election in a pandemic will look like.

We don’t know when schools will reopen.

We don’t know what a general election in a pandemic will look like.

We don’t know what effects lost school time will have on children.

We don’t know if the United States’s current and future government stimulus will stave off an economic collapse.

We don’t know whether the economy will bounce back in the form of a “v curve

Or whether it’ll be a long recession.

Or whether it’ll be a Great Depression.

Or whether it’ll be a “Greater Depression.”

We don’t know when we might be able to return to a new normal.

We don’t know when any of this will end for good.

There is, at present, no plan from the Trump White House on the way forward.


The New York Times, April 13, 2020.


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How is the 3D Printing Community Responding to COVID-19?

Reporter: Irina Robu, PhD


As the new pandemic COVID-19 takes over the globe, several countries are implementing travel restrictions, social distancing and work from home policies. Healthcare systems are overloaded and fatigued by this new coronavirus (COVID-19). Since COVID-19 is a respiratory illness, patients require specialist respirators to take over the role of the lungs. These respirators are in short supply, however, along with medical personnel, hospital space and other personal safety equipment required to treat patients.

Professional AM providers, makers and designers in the 3D printing community have started to answer to the global crisis by volunteering their respective skills to ease the pressure on supply chains and governments. The additive manufacturing and 3D printing community has numerous members keen to support during the COVID-19 pandemic.

A hospital in Brescia, Italy with 250 Coronavirus patients lacking breathing machines has recently run out of the respiratory valves needed to connect the patients to the machines. In response to the situation, the CEO of Isinnova, Cristian Fracassi used 3D bioprinting to produce 100 respirator valves in 24 hours, which are currently being put to use in the Brescian hospital.

At the same time, Materialise, has released files for a 3D printed hands-free door handle attachment to lessen Coronavirus transmission via one of the most common mediums. Door handles are exposed to a lot of physical contact over the course of a day, especially in public spaces such as offices and hospitals. The 3D printable add-on allows users to carry out the lever action required to pop open most modern doors using their elbows.

Protolabs, a leading on-demand manufacturer with 3D Printing is using rapid production methods to good use during the current Coronavirus outbreak by producing components for #COVID19 test kits and ventilators. California-based Airwolf3D volunteered their own fleet of 3D printers for the manufacturing of respirator valves and custom medical components. The company is also offering remote technical support for medical staff that would like to know more about 3D printing.

Volkswagen has started a task force that will adapt its car-making capacity and manufacturing facilities to the production of hospital ventilators and medical devices. Using their own 125 industrial 3D printers to tackle the COVID-19 pandemic. At the same time, Volkswagen is donating face masks to healthcare providers and local authorities as part of an agreement made with German Health Minister.

Stratasys has organized its global 3D printing resources to respond to the COVID-19 pandemic by printing full-face shields to provide protection to healthcare workers. The company showed that the strength of 3D bioprinting can be adapted on the fly to address shortages of parts related to shields, masks, and ventilators, among other things.
Doctors, hospital technicians and 3D-printing specialists are also using Google Docs, WhatsApp groups and online databases to trade tips for building, fixing and modifying machines like ventilators to help treat the rising number of patients with COVID-19, the disease caused by the coronavirus.

The efforts come as supply shortages loom in one of the biggest challenges for health care systems around the world.


3D Printing Community responds to COVID-19 and Coronavirus resources


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Economic Implications Of The Coronavirus

“From: Washington Post (March 19, 2020), The Atlantic (March 19, 2020), American Progress (3/6/2020), Morningstar (March 10, 2020)


Pandemics are particularly dangerous because the general population does not have immunity to the disease. Interestingly, flu pandemics have decreased in severity with time, perhaps partly due to viral preference for diseases that are very transmissible but not lethal. Despite some similarities between seasonal and pandemic flu, there are also key differences. While seasonal flu is every year, pandemics can have multiple waves; Spanish flu came in three waves, and the 2009 swine flu had two waves.

Past pandemics have varied substantially in their lethality. For example, the 1957 Asian flu, considered a moderate pandemic, emerged in China in February 1957, reached the U.S. by June, and spread very rapidly in the fall in the U.S. and Europe, with the return to school seen as a significant driver for starting new community epidemics during that pandemic. The corresponding vaccine was developed too late and was not more than 60% effective. Most schools remained open and no travel restrictions or restrictions on social gatherings were undertaken; 25% of the U.S. population was infected. The 1968 Hong Kong flu was milder but more widespread (estimated at almost 40% of the U.S. population infected). The death rate may have been significantly lower than Asian flu because patients had some pre-existing immunity.

Coronavirus 101: A New Virus Related to SARS and MERS

On Jan. 7, a new coronavirus was identified as the cause of several cases of pneumonia in Wuhan, China. COVID-19 is the disease caused by SARS-CoV-2, one of a family of coronaviruses, and this particular strain was new to humans. Most coronaviruses spread between animals, although the common cold is often caused by a coronavirus. Like more serious coronaviruses SARS and MERS, SARS-CoV-2 is believed to have jumped to humans by first moving from one species known to carry these diseases to another species capable of transmitting the disease to humans. Like SARS-CoV and MERS, it is believed to be mostly spread through respiratory droplets, often from a patient’s cough.

A comparison with other outbreaks is one of the easiest ways to think about the potential spread of coronavirus, although every disease has slightly different characteristics that limit the accuracy of this analysis. The intersection of the fatality rate (the percentage of infected patients who succumb to the disease) and how contagious it is, if left unchecked, is a simple way to begin to outline the potential impact versus past pandemics. Epidemiologists measure how contagious a disease is using a reproduction number, termed R0, reflecting how many people an infected person can typically infect. Generally speaking, an R0 of greater than 1 is a threshold for a disease being able to expand into an epidemic, and a virus with an R0 above 1.9 is considered highly transmissible. In addition, a higher R0 means a sharper rise and fall of infection rates with a shorter duration of the outbreak. An R0 of 1.9 could imply an outbreak of months, with a two-month peak in infections, as seen with the 1957 and 1968 pandemics.

Diseases are generally the most dangerous if they are both very deadly and very contagious (high R0), but most diseases tend to be more one than the other, as the self-interest of viruses would favor evolution toward diseases that don’t kill their victims. For example, Ebola and rabies have very high fatality rates but are tougher to transmit. At the opposite end of the spectrum is the common cold, which is fairly easy to transmit but almost never fatal. Smallpox was one of the most destructive diseases, as it was both very contagious and very deadly. Also, the Spanish flu of 1918-19 caused more than 50 million deaths worldwide and killed nearly 3% of the population. However, the spread of a disease is more than these numbers–significant efforts to contain SARS have eradicated the disease, even though it is more easily transmissible than the standard flu (which is very widespread every year).

Even though death rates have been falling gradually for flu pandemics since the 1918 pandemic, coronavirus pandemics are a newer phenomenon and don’t have an established trend. Fatality rates are already being estimated, but this is very difficult to do accurately at the start of any pandemic.

One interesting observation on the lethality of the 1918 flu pandemic is that the high mortality rate of soldiers on the front lines of Western Europe exerted an evolutionary pressure on the flu virus. From the virus’ viewpoint, it makes no sense to preserve the life of your victim if the victim is going to die anyway from non-flu causes. Therefore, natural selection favored the emergence of flu mutation that both infected and killed rapidly.


International Monetary Fund says the outbreak is the world’s “most pressing uncertainty.” The economic disruptions caused by the virus and the increased uncertainty are being reflected in lower valuations and increased volatility in the financial markets. While the exact effect of the coronavirus on the U.S. economy is unknown and unknowable, it is clear that it poses tremendous risks.

Policymakers should therefore immediately undertake a number of steps to address any economic fallout from the virus. The burden of meeting this challenge falls squarely on Congress and the Trump administration. The guiding principles need to be:

• Do no harm
• Put more, not fewer, resources in public health efforts
• Assure businesses that things will be fine if the virus hits their sector and remediate harm when necessary
• Calm financial markets
• Ease the risks for households and vulnerable populations


Economists have been using the SARS epidemic to put the coronavirus outbreak in context. The 2003 SARS epidemic is estimated to have shaved 0.5 percent to 1 percent off of China’s growth that year and cost the global economy about $40 billion (or 0.1 percent of global GDP).The coronavirus epidemic, which like SARS originated in China, differs in a few key ways.

China’s economy accounted for roughly 4 percent of the world’s GDP in 2003; it now commands 16.3 percent. If the coronavirus has a similar effect on China as SARS, the impact on global growth will be worse. Moreover, China’s growth is weaker than it was in 2003—after years of rapid economic development, China’s growth stands at 6 percent, the lowest it’s been since 1990. The dual effects of general economic deceleration and the U.S.-China trade war escalation has shaken its confidence. Even before the epidemic, China’s Purchasing Managers’ Index was already showing signs of contraction. The February reading slowed from 50 to 35.7, a level in line with that of November 2008 during the global financial crisis. The economic fallout from the coronavirus could rattle China’s economy further and dampen global growth.

Outside China, the outbreak has also affected global supply chains, as other governments have also taken immediate steps to slow the spread of the virus. The Harvard Business Review predicts that the peak of the impact will occur in late-March, “forcing thousands of companies to throttle down or temporarily shut assembly and manufacturing plants in the U.S. and Europe.” This again will disrupt global supply chains as well as demand for goods and services in the affected economies. These disruptions make it more difficult for companies in the U.S. and elsewhere to bring their goods to customers, and these companies will reduce exports from the U.S. to the rest of the world in the coming months.

Furthermore, households, companies, and governments alike are deeper in debt now than they were when SARS hit. For example, the U.S. nonfinancial corporate debt of large companies is currently around $10 trillion, up from around $4.8 trillion in 2003. Deutsche Bank released analysis showing the world’s major economies harboring the highest debt levels of the past 150 years, with World War II as an exception. They all still need to continue repaying that debt, even if jobs, customers, and tax revenues decline in a weakening economy. These fixed costs then will leave less money to spend on other things. Large amounts of debt often exacerbate an economic slowdown, especially if central banks can do little to ease that burden by cutting interest rates.

The world looks different from the last global virus outbreak in 2003. Global growth is already slow, and financial markets already have very low interest rates, which means that central banks in almost every major country have little ammunition with which to mitigate any potential economic fallout. This puts greater pressure on governments to use the power of their purse to counter the economic fallout from the coronavirus. While the fallout from the coronavirus will disrupt supply chains and global demand that could also affect the U.S. economy, the current situation also creates a lot of uncertainty over the longer term. Congress and the Trump administration can do a lot to counter the risks associated with the spread of the virus by engaging in fiscal policies (deficit spending) that will provide relief to affected populations and mitigate disruptions to U.S firms.


When Trump invoked the Defense Production Act, it was telling in two respects. First, it showed that the full force of the federal government will be brought to bear in the manufacturing of vital medical supplies. Second, it underlined what has already become clear: The way our modern supply chain is built is incredibly fragile.

We’ve built a global supply chain that runs on outsourcing and thin margins, and the coronavirus has exposed just how delicate it is.

We need to realize that there’s almost no industry sector—manufacturing and non-manufacturing—that isn’t reliant on China in the United States.
Chinese materials and manufacturing are so pervasive that the average customer has no idea how many of their everyday products contain Chinese components, or how reliant on Chinese components most companies have become. If you don’t have a first-tier supplier who’s sourcing from China, then your supplier’s supplier is.

To understand why the modern supply chain is uniquely vulnerable to a threat like the coronavirus, you have to realize how quickly it has changed. China joined the World Trade Organization in 2001, and surpassed the U.S. as an industrial powerhouse in 2010. During the SARS epidemic of 2002 and 2003, China represented 4.31 percent of worldwide GDP – today, it’s 16 percent.

Western companies find it cheaper to manufacture goods in China, and elsewhere in Asia, than to do so closer to home. Car parts, technology, fashion, medical gear, and drug components are particularly vulnerable to disruptions in Asian markets. In 2012, after the Japanese tsunami, you couldn’t buy a red Toyota for months, because the one factory that made red pigment for Toyota was offline. Apple, Fiat Chrysler, and Hyundai have already warned investors of potential supply constraints due to the coronavirus pandemic.

In addition to offshoring, companies have emphasized “just in time” delivery, keeping only 15 to 30 days of products on hand. That has made global companies more profitable but has also “significantly increased supply-chain risk.”

The worst of the supply-chain disruptions would begin now. Fewer Chinese ships are on the water, and major ports around the world, such as Rotterdam and Le Havre, are already feeling the effects. Those 15 to 30 days of inventory (even if a company stocked up prior to the Chinese Lunar New Year holiday) are likely running low now. We are going to see a slowdown, disruption, less variety, less options to the customers.

As the COVID-19 pandemic ripples throughout the world economy, it’s possible that it may begin to change the way global supply chains work. Companies will come under pressure to diversify where they make their products, which will prove easier for some than for others. While the blood thinner heparin may still be made in China, it’s not as difficult to move the infrastructure for, say, the kind of fashion sold at H&M and Zara to other Asian countries. “You can still emphasize low labor costs by moving into Vietnam, Malaysia, and Cambodia,” he said. More electronic and car-part production could shift to factories in Mexico and Brazil.


Taking the above into account (plus numerous other factors): how bad will this all be?

We have essentially made a collective decision to have ourselves a recession. We’ve shut down a significant portion of our economy, knowing that the result will be businesses going bankrupt, huge job losses and people losing their homes.

How bad it gets depends on decisions the federal government makes in coming days.

JP Morgan forecast that the second quarter contraction would be a stunning 14 percent — worse than the depth of the Great Recession. If they’re right, this would translate to 7.5 million jobs lost by the summer. In the Great Recession, about 8 million jobs disappeared. Now some are predicting that the drop in payrolls for April alone could be as high as 5 million.

Recessions are often set off by some kind of shock, but it’s usually preceded by a period of slowdown or uncertainty. Now we’ve gone from 60 to zero in days. You can now go to restaurants that are shuttered that were doing a booming business a few weeks ago.

We’re already seeing a dramatic jump in unemployment claims, but current data almost certainly underestimate how bad the situation has already gotten. Those who have filed so far were people who were laid off last week, and also got their act together to file unemployment claims.

If we know that we’re plunging off a cliff, the next question is how quickly we might begin to recover. Forecasts from Goldman Sachs, JPMorgan and Bank of America all assume the economy will bounce back in the third and fourth quarters of this year, but that might not be the case even if we get the virus under control: there are a lot of people losing their livelihoods.

As part of the federal solution, we have to make it possible for businesses not to lay people off even if they aren’t working, through some combination of grants and low-interest loans, to get a “quick bounce-back” by keeping people connected to their employers.

All these economists said we must do everything: Give support to state governments that are particularly vulnerable because they’re required by law to balance budgets; help employers not go out of business; shore up the safety net, including unemployment insurance, Medicaid and food stamps; and give support directly to people.

During the Great Recession, we turned to austerity way too fast and lengthened the pain way longer than we should have. The danger is not in building up debt that eventually will have to be repaid, but in holding back because the numbers look too large. The risk is not in doing too much, but in doing too little. All this is pretty frightening — and it doesn’t even take into account how long it might take to control the coronavirus.

Sources: Washington Post (March 19, 2020) , The Atlantic (March 19, 2020), American Progress (3/6/2020), Morningstar (March 10, 2020)

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Reporter: Gail S. Thornton, M.A.

The following article is reprinted from the Anchorage Daily News.


One of Alaska’s first confirmed coronavirus patients tells his story

March 19, 2020

A Ketchikan man who contracted the illness caused by the new coronavirus is speaking out about his experience.

In a social media post and an interview with the Ketchikan Daily News, he described his symptoms, how he was tested and his experience communicating with Alaska public health officials.

As of Wednesday morning, Glenn Brown, the attorney for the Ketchikan Gateway Borough, is one of nine people statewide who have confirmed cases of the virus. Officials have not said any of the people with confirmed cases have been hospitalized.

Brown said in a Facebook post that he was feeling better and was notified by public health officials that he’d tested positive for COVID-19 on Tuesday afternoon.

“I became sick Saturday morning with fever, headache, general achiness and chills,” Brown wrote.

Brown said he has “no idea” how he contracted the illness.

“I interacted with no one in recent weeks who was exhibiting obvious symptoms,” he wrote.

According to a statement Tuesday from the Ketchikan Emergency Operations Center saying one of its employees tested positive for the virus, the employee had a history of travel to the Lower 48. The Ketchikan Emergency Operations Center on Wednesday confirmed Brown is the employee.

The Ketchikan Daily News reported that Brown had recently traveled to Oregon and Juneau before returning to Ketchikan on March 9.

After public health officials told Brown his diagnosis, he said that he went through more than an hour of questions with them, he told the Ketchikan Daily News.

“I used everything from cellphone records to work calendars to debit card bills, to recall everybody that I may have had contact with,” Brown told the Ketchikan Daily News. “I wanted to provide that information to public health, (so) that they could alert those people and really hope to kind of arrest this thing.”

Brown told the paper that public health officials focused on two days before he developed symptoms of the illness. Brown had been “working closely with borough staff and upper management” in those days as part of his job, the paper reported.

“I apologize for causing undue concern for anyone, especially my co-workers at the Borough,” Brown said in the Facebook post.

Ketchikan Gateway Borough employees in direct contact with Brown were instructed to self-quarantine for two weeks, according to the Ketchikan Emergency Operations Center statement.

The statement also said that the borough had hired a service to disinfect the now-closed White Cliff Building, which houses the Ketchikan Borough offices.

According to the Ketchikan Daily News, the last time Brown was at the borough’s White Cliff Building was Friday.

The paper reported that as of Tuesday night, there were no plans to test people who had been in direct contact with Brown.

A public information officer for Ketchikan’s Emergency Operations Center told the Ketchikan Daily News that she understood that to be tested, people would need to have “several” symptoms of the virus.

“I would also ask that you join me and all of Ketchikan to actively minimize community transmission so that we can protect our seniors or other medically vulnerable folks in Ketchikan,” Brown wrote. “I pray that we all make it through this largely unharmed, and together.”

The first person in Alaska to test positive for COVID-19 was an air cargo pilot who arrived at Ted Stevens Anchorage International Airport on March 11, officials announced last week. He went through the airport’s North Terminal, which is separate from the domestic terminal.

Alaska’s chief medical officer, Dr. Anne Zink, said last week the man had self-isolated and was “stable.”

On Monday, officials said two older men in Fairbanks were diagnosed with the illness. Both had recently traveled to the Lower 48, Zink said, but were not traveling together.

In addition to the Anchorage case, the case in Ketchikan and the two in Fairbanks, officials on Tuesday announced that two more people had become sick with the virus — one in Fairbanks and one in Anchorage — bringing the total number of confirmed cases as of Wednesday morning to six.

Zink said that both of those cases were also travel-related. None of the three people who tested positive for COVID-19 on Tuesday were hospitalized, Zink said.

Fairbanks Memorial Hospital released a statement Tuesday saying a woman with a history of recent travel had tested positive for COVID-19.

“She self-isolated prior to testing,” the statement said. “This patient has been notified and is in stable condition and does not require hospitalization.”

A University of Alaska Fairbanks employee was one of the people who had recently tested positive for the virus in Alaska, university officials said Tuesday.

An internal email advised anyone who had used the O’Neill Building, which houses the College of Fisheries and Ocean Sciences, to stay home and monitor themselves for two weeks.

State and local officials have taken a series of steps to stem the spread of COVID-19 in Alaska, including closing schools, calling on hospitals to halt elective surgeries and shutting down dine-in service at all restaurants, bars, breweries, cafes and similar businesses.

About this Author

Morgan Krakow

Morgan Krakow is a general assignment reporter for the Anchorage Daily News. She is a 2019 graduate of the University of Oregon and spent the past summer as a reporting intern on the general assignment desk of The Washington Post. Contact her at mkrakow@adn.com.


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Will the Coronavirus Permanently Change Our Way of Working?

Reporter: Joel Shertok, PhD




What happens if after 2 – 3 months of industry personnel working from home, senior management finds that workers productivity is just as good as in an office environment, and the workers are happier??
In February 2014 a strike on the London Underground offered management theorists a lesson in resilience and adaptation. Because the shutdown closed some but not all Tube lines, frustrated Londoners were forced to rethink their commutes to and from work. Researchers at Oxford and Cambridge universities subsequently found that around 5% of passengers stuck to their new itineraries even after normal service resumed. The long-term economic gains of one in 20 travellers adopting new and improved ways to get to work turned out to be greater than the short-term costs of the disruption.

The global covid-19 outbreak presents a far greater challenge to the corporate world than striking transport workers. Profit warnings are spreading nearly as fast as the disease. Analysts at Goldman Sachs, a bank, estimate that earnings growth for firms in the s&p 500 index could grind to a halt. Gauges of business activity, such as purchasing managers’ indices, have cratered in Asia and are expected to weaken elsewhere as the coronavirus crosses more borders. Consumers are spending money on little except sanitary wipes, face masks and tins of Campbell’s Soup. Fears of a pandemic have wiped $7trn off the market value of listed firms worldwide in the past fortnight (see article).

Some companies will, like most of London’s commuters, revert to autopilot once the threat recedes. But for others the interruption will have a lasting effect, accelerating trends in business organisation that were already under way. Two are particularly important. The next few months are set to be a giant experiment in whether new technologies can allow successful mass remote working for employees, speeding up the reinvention of the office. And for firms already worried about rickety supply chains amid a trade war, the virus gives another reason to reconfigure them.

Take employees first. Companies have had to ask themselves whether to let employees travel, attend conferences or even come into the office. In all three cases the answer is increasingly “no”. Many big firms, including Amazon and JPMorgan Chase, have banned all non-essential excursions. Airlines and hotels are reporting steep falls in bookings. Corporate Travel Management, a listed Australian firm that organizes business jaunts, has warned the impact could last up to six months. It has slashed its earnings forecast for the year by up to 16.5%. A survey by the Global Business Travel Association, an industry body, found that business travel, which costs companies over $1trn a year (and emits roughly as much carbon as Ukraine in flights alone), could fall by over a third while the epidemic rages.

Large corporate events are being called off. The oil industry’s biggest annual jamboree in Houston and the Geneva motor show will not take place this month. Google and Facebook have given the term “teleconferencing” a whole new meaning by moving a few of their big shindigs partly or wholly online. With Milan and Paris fashion weeks curtailed, Armani streamed its autumn/winter show from behind closed doors. This is bad news for events firms such as Informa, whose share price is down by a fifth since the start of February, especially at a time when many high-profile industry powwows are already losing their lustre.

At the same time more companies are learning to love telecommuting. On March 3rd JPMorgan Chase told thousands of its bankers in America to work from home as it tests its contingency plans. Twitter has asked its 5,000 employees to do likewise. Sony went so far as to shut some of its European offices altogether, just in case. The affected workers are nonetheless expected to toil remotely.

As well as highlighting how bloated some travel budgets are, virus contingency plans may also reveal how inefficiently office space is used. Big British and American firms pay on average $5,000 per employee in annual rental costs. Just 40-50% of desks are actually used during working hours—often not very well. Last year two in five respondents to a survey of 600,000 desk-jockeys by Leesman, a data provider, said their office prevented them from working productively. If their managers now find that productivity does indeed rise—or at least doesn’t dip—as staff self-isolate at home, the case for teleworking may look irresistible. Investors are betting it will. In the past month the share prices of Slack, a corporate-messaging platform, and Zoom, which makes videoconferencing software, have shot up by 18% and 35%, respectively.

The second way in which companies are rethinking their business has to do with supply chains. Since the 1980s these have become more complex and global, with large firms now dependent on thousands of suppliers. The embrace of lean manufacturing and just-in-time delivery of components, pioneered by Toyota in the 1970s, has made production more efficient but more vulnerable to disruption, as companies stockpile fewer and fewer necessary materials. The median firm in the s&p 500 carries only 66 days of inventory, and some have far smaller buffers than even that—Apple has just nine days, according to data from Bloomberg.

When natural disasters strike big companies usually get by, shifting production temporarily from afflicted areas to those that are not. But unlike a flood, an earthquake or even the Sino-American trade war, all of which companies have some experience in planning for, covid-19 could affect all of a firm’s actual and potential subcontractors simultaneously. In such a scenario carrying bigger inventories and having suppliers at home may no longer look wasteful. It may come to be seen as necessary.

Immune response
The coronavirus will not make business travel or lean global supply chains disappear. Chinese factories are cranking up again and high-flyers will, in all likelihood, be back in airport lounges soon enough. But the crisis offers a chance to experiment with new ways of doing things—and to question the wisdom of old habits. Chief executives should not be immune to the opportunity.


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