DATE: July 15, 2020
Nolan has closed 3 transactions during the past 120 days of the COVID-19 pandemic. The M&A market remains open and we’d like to share our observations with business sellers from our work during this unprecedented time:
1. COVID-resistant businesses are in high demand. Private equity groups and strategic buyers have a large appetite for businesses that performed well during the March through May COVID shutdown. These businesses have proven to have pandemic and recession resistant characteristics. Companies with resilient June 2020 numbers are also observing significant interest today. Buyers and investors remain compelled to transact; strategic buyers view acquisitions as a needed growth path during slower GDP times and private equity groups need to deploy capital.
2. Lenders are willing to provide debt financing today, but still need to underwrite on financial results. While lenders are approaching M&A opportunities with more selectivity around the companies and financial sponsors they are underwriting, there remains an appetite for companies that have maintained their performance during 2020 and the pandemic. These companies provide results that banks need in order to underwrite debt financing for M&A transactions. Furthermore, banks, investors and buyers are willing to consider alternatives to trailing twelve month metrics for sellers. We have witnessed the use of alternative metrics to evaluate businesses such as run-rate and COVID-adjusted EBITDA. Defensible EBITDA positioning for valuation and debt capacity is necessary for any seller contemplating a sale in this period to maximize valuation.
3. Businesses that received PPP can be sold prior to SBA forgiveness. In fact, we have advised business owners who have sold through this dynamic. Buyers and investors have found ways to “close over” PPP in both stock and asset structured transactions without pre-payment of PPP. Sellers need to obtain sound advice from their advisors to maintain the prospect of PPP forgiveness through transaction closing.
4. Deals are closing virtually. Not many are eager to hop on planes these days. For sellers and buyers experiencing travel or meeting restrictions, we have used a variety of technologies to close deals virtually. We have worked with business owners and buyers both domestically and internationally to complete facility tours, regulatory compliance, closing integration and due diligence to meet closing timelines.