By Scott Bushkie
As business owners are working to process the impact of COVID-19, we’re looking at how it will affect M&A. In the short term, some companies will slow the pace of acquisitions. That’s natural in uncertain times.
But market conditions are different from our last recession. The good news is that many companies and private equity firms have been doing well for years. They have record amounts of “dry powder,” that is undeployed capital ready for investment.
What that means is that the pool of business buyers is not going to dry up. Market competition has been incredibly strong up until now, and many buyers are going to stay active — in fact, some will become more aggressive in order to capitalize on the current climate.
And with the Federal Reserve cutting interest rates to 0%, buyers may decide they simply can’t afford not to push ahead with acquisition plans.
In the meantime, if you’re experiencing downtime in your business, consider how you can use it for growth:
Strengthen marketing: Update your value proposition. What are your three distinct signature strengths that set you apart from the competition? Make sure this information is current on your website, marketing materials, presentation decks, etc.
Recruit: If your business is still in a good place, use this time to seek out great talent that wasn’t available a month ago.
Brainstorm: Plan ideation sessions with your employee team and brainstorm business development opportunities. Look for ideas that will make you successful in a normal business environment and consider how you might thrive through future pandemics.
Document: Get your secret sauce down on paper. A business is more saleable when there’s less risk involved. And there’s less risk when all systems and procedures are documented on paper instead of squirreled away in the owner’s mind.
When it comes to selling your business, timing is important. With the longest bull market in history, we all knew there would be a correction coming. But we expected the trigger would likely be some kind of political or global conflict. No one had pandemic on their radar as the next economic crisis.
M&A markets align with business confidence. When things are normal and steady, buyers feel comfortable spending. When it’s unpredictable or volatile, that’s when people pull back. Conditions are not all doom and gloom, however, and buyers and sellers both have opportunity to emerge as winners in the months ahead.
Scott Bushkie is the founder and president of Cornerstone Business Services. With more than 20 years in the M&A industry, Scott is a recognized leader in the field, providing exit strategies and M&A advisory services to business owners in the lower middle market. In 2018, Scott launched the Cornerstone International Alliance, providing member firms with enhanced buyer reach, access to industry experts, resources, and structured best practice sharing. Operating with the philosophy that success breeds success, the alliance helps top tier lower middle market M&A firms create more value for their clients.
"The entire process went smoothly and professionally. The BTS team kept me fully informed at every step. They worked hard and were effective in bringing the deal home."
"Skip and I continue to be grateful for all you have done to make the sale of Pure Flow come to fruition."
"BTS’s level of expertise in the process and close attention to detail enabled us to successfully navigate the deal."
"These types of transactions are often long and complicated and I doubt it could have been successfully completed without your close ongoing involvement."
"The outside objective point of view that you have brought us has been invaluable as we prepare for the rapid growth."
"John then found the right buyer and coordinated a seamless transition—he doesn’t miss a single detail."
"John immediately identified our strengths and experiences and discussed a business that ultimately was more in line with our goals."
"The BTS team came in, evaluated everything in a professional and thankfully non-threatening manner."
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We have had many conversations with business owners in the lower mid-market who are unsure about the future and wonder whether they should sell or hold.
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Precision Machining Company
Initially, liquidation was a serious consideration. It would offer a quick exit but would hurt loyal employees and disrupt the customers who had come to rely on its quality production.
Green Product Company
Our client owners could dig in for the long haul…However, this would take five years or more. Owners simply lacked the horsepower to do it.
Water Purification Company and Young Buyers
Owners decided they wanted to retire. They also wanted to be fair to the staff who had been loyal to them. Could the company be sold, the staff retained and the facility remain in use?
Magnetics Company with High Profile Customers
(T)he manufacturer would need to focus on growing EBITDA to capture interest from major strategic buyers and achieve a higher multiple of earnings.