DATE: April 29, 2021
COVID-19 was declared a National Emergency in the U.S. a mere 14 months ago. Overnight, business owners had to figure out how they would continue to operate during a pandemic with an indefinite end date. Even the best businesses in the U.S. suffered greatly during the initial pandemic-affected months of March, April, and May 2020 as lockdowns and restrictions were extended. For many, 3-4 negative months ended up devastating financial metrics for the full year of 2020, causing some business owners to place their exit plans on hold until 2020 was in the rearview.
Business owners successfully altered their strategies and processes to operate in the COVID-19 world as 2020 continued. The result? Many businesses recovered extraordinarily well, and their results quickly returned to normal or even exceeded their pre-pandemic performance. Now in the second quarter of 2021, the most highly impacted COVID-19 months are filtering out of financial results, specifically when looking at the Trailing Twelve Months (TTM) metric. For the purposes of a business sale, TTM results represent the primary time period for buyers to value acquisitions.
The businesses being sold today are proving that a few unexpected downward 2020 months do not have to hold up your desire to exit in 2021. Business owners are anxious and questioning how the proposed capital tax consequences of the Biden administration may affect a future sale. The combination of more positive TTMs and closing prior to any tax changes have made the 2021 M&A market robust and prime for business sellers.
As an example, see the graph below from a recent client who was negatively impacted by COVID-19, but for all other purposes had a great 2020. This business owner was under the impression that since COVID-19 impacted 2020, a sale process should be delayed until the company posted 2021 results. However, by analyzing the recent TTM performance of this company, this owner is now able to display strong company performance and meet the goal of exiting in 2021 to avoid the proposed capital tax consequences.
TTM EBITDA 2019 – 2021