COVID-19 AND THE M&A MARKET

The two-month COVID-19 economic crisis has significantly disrupted the M&A deal market. While there are examples of transactions that have closed, most transaction processes that were not in their final stages have slowed materially as buyers and sellers have focused on preserving their companies and emerging from the crisis.

In this environment, though, there are concrete steps that both potential buyers and sellers can take to maximize their potential gains from an M&A strategy as economic activity reemerges.

1. Establish a framework to quantify the financial impact that the COVID-19 pandemic is having on the business, isolated from seasonal factors or other non-COVID influences. A good place to start is by generating bi-weekly or weekly historical P&Ls trending against 2020 periods and the same periods last year. At a very high level, buyers and financing sources will look at pre-COVID and post-COVID results as a way to understand a business’s potential under “normal” operating conditions.
2. Develop and track key non-financial indicators to provide a snapshot of the underlying factors that drive recovery. Key indicators could include sales metrics such as quote volumes, requested order lead-times, sales funnel, or operational metrics such as capacity utilization or inventory turns. Understanding these indicators can help sellers determine when to kick-off a sales process and give buyers a more complete window into the health of the business.
3. Determine business pain points that were discovered during the crisis, articulate and begin to execute a strategy to address the challenges and de-risk the business. Examples include management gaps, customer or supplier concentrations or obsolete technology. If sellers resolve the issues in advance of a sale process, the de-risked business has the potential to be more valuable. Buyers can use their respective pain points as a strategy for identifying targets that would help transform their business model.

Over the next few weeks, Schneider Downs Corporate Finance will issue a series of articles on the impact that COVID-19 is having on the M&A market. Next up in the series, we will examine the impact on deal volume and value.

If your strategic plans include the possibility of a transaction, learn more about our experience in advising clients through the course of a merger or acquisition, by contacting Peter Lieberman at 412.697.5364 or plieberman@schneiderdowns.com.