There is little doubt that the COVID-19 pandemic has impacted market conditions and the M&A process significantly. While business disruption and likely reduction in revenue and profitability are some obvious negatives of the current situations that make selling a business challenging, there are a number of factors that favor companies in the market at the moment, including:
- Reduced inventory of available business opportunities.
- A plethora of both potential buyers and available capital at historically low-interest levels.
- Increased premium in valuations for businesses that maintain or experience minimal disruption during the current period.
It is crucial for M&A Advisors and companies marketed for sale, to monitor developments and react to disruptive forces. Below I have highlighted some real-life examples that Beacon Mergers & Acquisitions‘ clients across various industries have taken to better position themselves through this turbulent period.
One of our clients in the wholesale distribution field experienced a decline in sales of approximately 50% over the months of March and April. The company, therefore, deferred incoming purchases and focused its attention on strict inventory management. Despite its strong financial position, as the business is also experiencing a longer collection period for receivables than usual, it has applied for some of the relief loan programs to mitigate any cashflow issues.
Our client in the SaaS and cloud services space has experienced higher than usual demand for its services in the last couple of months as companies and individuals shift to a virtual collaborative work environment. Consequently, the company experienced record sales in March of this year. The business is currently focusing its efforts on product development to create add-ons that will enhance the user experience for particular Web-based collaborative platforms thus capturing more of the work-from-home demand. While these are all positive developments, the business is focused on closely monitoring receivables and cash flow as some clients experience financial issues and payments get deferred.
Our client in the specialty cleaning industry has been forced to shut down operations and sales for Q1 2020 are expected to decline significantly y-o-y. The business is expected to resume operations in the second week of May 2020 and management has focused its efforts on maintaining communication and relationships with its clients to ensure retention once business resumes. In addition, the company is planning on some promotional campaigns to bring in additional business and recover a portion of lost revenue once operations are running. While policy implementation and consumer behavior in response to policies will add uncertainty, the business expects demand to start picking up in Fall 2020 with an estimated annual revenue drop for the fiscal year to not exceed 30%.
Our client in the commercial plumbing and HVAC industry experienced a 30% decline in sales over the first quarter. The company furloughed some of its staff, only retaining the best-skilled tradespeople to work on projects deemed essential. This measure will mitigate the impact on profitability. In addition, the business plans on leveraging this higher service quality to generate stronger referral-based business in the second half of 2020. Management expects its project pipeline to start growing within the next quarter.
Our client in the specialty manufacturing industry has shut down operations temporarily during the crisis. In this downtime, the company has focused on formulating a sales and marketing strategy to help boost sales going forward. The business has a strong administrative team which is prioritizing communication with clients to ensure high client retention post-pandemic. In addition, some of its previously implemented cost-cutting strategies along with its lean operating model have allowed the company to internally finance operations without the need for loans or external relief.
While there is not one single solution to maintain operations and see a business through the current unprecedented times, it is important for owners to be proactive and evolve their business with the changing times and environment. During actively marketing an opportunity, it is the role of the M&A advisors working with the business to continuously check and update buyers on the latest challenges but also opportunities the business is facing. It is this proactive approach and the business’ ability to adapt and respond to the changing situations that will be the driver behind successful business transactions in the current environment.