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M&A Markets Begin to Reopen, with Some Expected Near-Term Changes

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In mid to late March, fear and uncertainty surrounding the COVID-19 pandemic was in full swing, and with good reason. States were calling for lockdowns, COVID cases were rising exponentially, testing was limited, PPE was running out, and the Federal government was yet to agree on a stimulus package. Given the chaos, potential acquirors had many reasons to pull back, and they did.

As a firm, we were working on eight M&A projects in early March, and by the end of the month, six of those had hit the proverbial “pause button.” Anecdotal data from others in the M&A community mirrored our experience – except for deals at the edge of the finish line or those select industries positively impacted by the pandemic, the M&A markets were essentially closed.

In recent weeks, however, sentiment has started to shift. Private equity firms have reached out to us on a regular basis, declaring they are “open for business” and looking for new opportunities. From our conversations with these firms, they appear to be sticking to their stated mandates – acquire high-quality companies with strong growth profiles. And they generally seem focused on performance of the business pre- and post-COVID, and willing to forgive a temporarily downturn tied to the outbreak and resulting restrictions.

Similarly, commercial banks, who often provide necessary debt to facilitate M&A transactions, seem to have worked through their backlog of PPP loans, and are focused again on new customers and lending opportunities.

But it’s not as if the pandemic has had no impact. So what has changed? Here are a few adjustments sellers should expect, at least in the near term:

  • Video Conferencing – Management meetings are often the first opportunity for buyers and sellers to meet face-to-face. The meetings are both a chance for buyers to dig into the details of a business, and for sellers to get a feel for the personalities and goals of their future partners. As these meetings likely shift from in-person meetings and dinners to video meetings, business owners will need to get comfortable with communicating (and selling) over this new medium.
  • Virtual Due Diligence – Buyers accept that the due diligence process will shift in the short run, with less direct contact. Buyers still value direct interaction and relationship building with sellers, but everything that can be done remotely will shift online, potentially including virtual facility tours.
  • “Second Wave” Contingency Plans – Included in diligence, buyers will want to understand what plans are in place to respond to a “second wave” of COVID-19, should that occur. Having a well thought out plan (including remote employee readiness, supply chain contingencies, etc.) will not only give buyers confidence in the business going forward, but will also reflect well on the management team overall.

Time will tell if any of these shifts become the norm long-term. But in the interim, after a two-month hiatus, the M&A window has begun to reopen, and deal activity is likely to pick up in the back half of 2020.

To learn more about Berntson Porter Corporate Advisory services, click here.

You can also access our webinar on “Tips for a Successful Business Sale: What to Expect Before, During and After.” 

Berntson Porter is here to help businesses navigate these unprecedented times. Visit our Resource Center for up-to-date information about COVID-19 legislation that impacts you and your business.