Q1 2020 Activity Overview & Q2 Outlook
As the first quarter of 2020 comes to an end in the midst of significant socioeconomic changes and uncertainty, Beacon Mergers & Acquisitions has maintained its active presence in the marketplace providing M&A, business valuation and debt financing services to clients across North America. Below are some of the highlights of the first quarter activities of the company.
Mandates & Transactions Summary:
Following a record-setting Q4 2019, the activity at the start of 2020 maintained its velocity and momentum. During the first three months of the year, Beacon added four new exclusive sell-side mandates to its portfolio and secured letters of intent for five of its M&A clients. Concurrently, Beacon successfully completed three debt financing advisory mandates in Q1 2020. Combined deal flow (acquisition and debt) serviced during the first three months of the year exceeded $50M.
While the COVID-19 pandemic has had a significant impact on some of the businesses represented by Beacon, a lot of our clients have held up well, maintaining operations and continuing to provide their products and services. On average, during March 2020, average monthly revenue y-o-y among clients dropped by 20%. While significant, a lot of this is expected to be mitigated by lower labour and lower debt servicing costs, both related to small business assistance programs implemented by the government. While the long-term impact on annual revenues and profitability is still unknown, it is clear that businesses with a good operating model and strong balance sheets with moderate to low exposure to discretionary spending and the travel and entertainment industries will be well-positioned for a rebound in performance.
Q2 2020 Outlook:
As Beacon’s business operates in three distinct service areas, below is our outlook on each of them:
Transactional M&A Services: Slow down in deal volume and a prolonged period for deal completions are to be expected, mainly driven by a mismatch in expectations between buyers and sellers as well as by lenders’ backlog of applications for financing. Businesses with strong market positioning will still be able to command market rate valuations, while we also expect to see some distressed business opportunities come to market. Similar to the 2008-09 period, mainly in the lower mid-market space, we expect an increase of potential buyers as many C-level executives and managers look for opportunities as entrepreneurs after exiting the corporate world.
Debt Financing Advisory: Increase in activity as various businesses will be looking for additional liquidity to cushion the impact of revenue decrease and operational disruptions. Various government-backed and some private lending options coming online make this a viable option for businesses. An increase in applications and physical closure of a lot of lenders’ offices will make the process longer and more complicated. Special situations and distressed asset purchases will also require an advisor assisting and sourcing debt options for clients.
Business Valuation Services: Increase in activity as businesses and their shareholders will have to revise assumptions and inputs as businesses suffer or benefit from the current situation. Beacon expects a significant increase in pro-forma based valuations instead of traditional income-based historic approaches as most businesses will be emerging from the current situation in better or worse shape and only a handful will maintain exact market position.
In summary, while aware of the challenges the COVID-19 will have on businesses and our services, Beacon maintains a realistic outlook of the situation and sees various opportunities to continue serving clients across North America with its best in class investment banking services. We continue to offer our support and assistance to clients so they are able to come out stronger and better prepared following the COVID-19 pandemic.