“ARE M&A TRANSACTIONS GETTING DONE DURING COVID?”
A REPORT FROM THE FRONTLINES
We have many business owners, prospective clients and their advisors asking (phrased in different ways) “Are transactions getting done during the pandemic and if so will I have to take a discount in value to sell my business now?” In this month’s blog post, we will address these and other questions we have been receiving.
“Are transactions getting done during the pandemic?” Yes transactions are being completed and even being started. Last month we closed a deal (Sale of South West Plumbing to the Flint Group) and another client’s transactions is being finalized to close next month. We have found that Strategic Acquirers and Financial Investors’ appetites for transactions remains very strong.
“Will I have to take a discount to sell my business now?” Probably not. Because certain industries have become unattractive to acquirers due to their end markets served (e.g. commercial aircraft, cruise ships, hospitality, etc.) investors are focusing and/or pivoting to high quality companies which have had little or no negative impact to them. Therefore, valuations for these businesses remain high.
“How will potential acquirers look at my financial performance now?” For our clients we are making adjustments to their financial statements which are being accepted by Acquirers. If the company had a down month or two, we adjust those months based upon historical average or 2019 performance. In this way our clients’ Trailing Twelve Months (TTM) reflects the underlying performance of the company. As always having high quality financial statements prepared by outside auditors or CPAs is preferred.
“How do acquirers look at PPP Loans?” In general the PPP Loan is assumed by acquirers as forgiven prior to closing or will be forgiven post-closing. For transactions closing prior to the forgiveness of the PPP Loan, clients are providing special representations to the acquirers regarding forgiveness of the PPP loan.
As always, we welcome your questions and are happy to talk to provide any helpful insights or actions.