How has COVID-19 Affected Mergers and Acquisitions?
Category: COVID19 | Selling Business
August 5, 2020

You’ve heard the saying “it’s a buyers’ market” or “it’s a sellers’ market” mainly as it relates to real estate or stock. The saying also applies to businesses. With the recent economic downturn due to COVID-19, many top brokers are saying it’s a buyers’ market 

However, reports from Q1 show a different story according to the International Business Brokers’ AssociationAccording to the Q1 2020 Market Pulse Report published by the International Business Brokers Association (IBBA), Mergers & Acquisitions Source, and the Pepperdine Private Capital Market Projectbusiness brokers representing small businesses (valued at less than $2 million) report 46% of their deals have been delayed and another 11% were cancelled due to the COVID-19 pandemic. 

While deals that were being negotiated before the pandemic may be falling through due to changed circumstances, it still opens up the door for new opportunitiesas we laid out in our previous blog postBeing an attorney who was working in Mergers and Acquisitions during the last economic downturn in 2009, I can tell you that this time could prove to be another buyers’ market, with considerations.  

Depends on the Sector 

Several sectors of business are seeing a huge uptick in sales and clients and may not be able to keep up with their level of growth. This is a great time to buy. Certain sectors – like mitigation companies or cleaning companies for commercial buildings – are thriving right now. Those companies may be prime to invest in or buy.   

However, it’s important to assess the longevity of the growth these companies are seeing, once the pandemic has subsided. Businesses that have been able to double their sales despite shut downs – like alcohol retail and pizza delivery restaurants – are going to come at a higher price, but with the assurance that they can withstand a downturn.  

Company Performance – Before, During and After 

When looking at a business to buy, you want to identify those that were doing well right up to the time of the recent downturn and those that can, with all things being equal, do well after this situation has passed. 

Even if all fundamentals indicate that the potential business should return to prior levels, a buyer must dig deeper. While the business’s sales itself may be doing fine right now, consider how the pandemic’s long-term effects might touch other areas of the business.   

  • Customers: While the business may seem fine, what about its customers? Will they still be there? 
  • Supply Chain: What about its suppliers? Will they be around?  
  • Staffing: If the company laid off staff, will they come backWere any key employees let go? who will not be returning, and may be hard to replace? 

If you have any questions about a business you are interested in buying or selling, please remember to contact a trusted attorney to navigate you through the process. Contact the team at Bridgeford today for a complimentary consultation.  

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