Summary: Inevitably, M&A activity was halted by the coronavirus pandemic and the ensuing effects on the market in the first half of 2020, but it has rebounded with an incredible amount of buyer interest and activity. Regardless of how COVID-19 has impacted your business, your prospects for transition remain strong. Guest blogger and friend of BGW, Clint Bundy, Managing Director of Bundy Group, explains.
Looking back to the start of 2020, the big question in the M&A world was, “How much longer will these good times last – the bull market, the flurry of deals, the robust valuations, the genuine buyer interest, the inquiries from private equity groups?”
Of course, we didn’t ask that question for long. Shortly into March, the pandemic brought M&A to a screeching halt. Suddenly, the question became, “When and how will we ever recover from this?”
But, recover we did -- and much more quickly than we could have anticipated.
Like everything else in the world, there’s a “new normal” in M&A. It’s different, but it’s far from hopeless. In fact, for many businesses, it’s better than ever, making planning for transition something to put back on your must-do list.
What’s changed?
COVID-19 represents a true market dislocation. Under terrible stress, the market couldn’t price assets correctly -- absolutely or on relative basis – which is why M&A activity halted for a time.
Emerging from the fallout, we have two categories of businesses: those that fared well and even grew during the crisis, and those who struggled and may continue to be struggling. For that first group, the prospect for commanding strong valuations and attracting strategic and private equity partners has returned. Owners of these companies are in a position of strength if they bring their companies to market now. Literally, it makes sense to sell if the owner is emotionally ready to do so and plans for transition were previously in place. For the latter group, the opposite is true: Poor performance over the last two quarters will significantly lower their valuations. Selling or bringing on partners makes no sense unless there is a dire need for the owner to free themselves from the company. For them, waiting is the best prescription we have.
Of course, the recent election is still on everyone’s mind, but if history tells us anything, it’s that M&A volume is not impacted by who’s in office at all. That takes a true market dislocation – COVID, the financial crisis of 2008, or the like. Still, a dramatic shift in tax rates, which will now come either in 2021 with a new administration or in 2025 with the expiration of many provisions of the Tax Cuts and Jobs Act (TCJA), can affect valuation. Establishing close relationships with a CPA firm experienced in M&A, along with a firm like ours who represents the seller in transactions or a business in raising capital, is your best bet for timing the sale of your company, getting the most money for your company, and allowing you to realize the life you want to lead after your departure.
What are my next steps as a business owner?
No matter where COVID has left your business, don’t be in a rush to exit. Better financial results and personal feelings of peace about leaving the company are realized only when proper transition planning has taken place. Remember, your exit phase is another important milestone for your business. Give it as much thought as you did your startup and growth phases – pandemic or not.
Clint Bundy is Managing Director of the Bundy Group, an investment banking firm with offices in North Carolina, New York and Virginia. Bundy Group has advised clients in over 200 transactions in 30 years across a number of core industry verticals and management teams in business sales and capital raises. Clint specializes in advising business owners before, during, and after exit from their businesses. Learn more at www.bundygroup.com.
