April 29, 2020
I’m hearing something quite often these days. It goes like this: a business owner (who was thinking about selling his business pre-COVID-19) said that in lieu of the COVID-19 situation, he’s been in touch with various friends, including some who are in the finance fields (his banker and CPA), and together they developed the opinion that this may not be the best time to put his business on the market. He went on to say that apparently due to the uncertainty and fear in the overall business climate, valuation metrics have dramatically fallen and damaged company values. He continued, saying it seems that buyers are now only searching for desperate companies where the asking price is at rock bottom. And he concluded with the statement, we’re not even slightly interested in “escaping at any price,” so we have decided to suspend the sale of our business until this market rebounds. We still plan to utilize your firm, but for now we will stand down. Keep our file open and alert us when you think you see a turnaround.
We thought it would be fun and educational to simply publish my response as this month’s educational blog – so here it is…
Dear Successful Business Owner,
Thank you for your note, and I’ll agree that you are “half right.” Due to the effects of the pandemic and oil price drop on the M&A scene, those we work with who are looking to buy businesses seem to be splitting and taking two paths. The first group will do as you say and look to bottom feed on distressed companies that they can shore up with capital and nurse back to health after the smoke clears. However, the second group wants to make what we call “a flight to quality” - meaning they will look for the very best businesses fitting their strategic, operational, growth, geographic, and other plans. These buyers have a 180-degree different mentality and will not use the COVID-19 performance period against you in their acquisition strategy. Since you have a solid business, the key for you would be how we “message the sale.”
You may also find solace in the fact that we do not represent “distress sales.” Our clients are the best of the best, and we see this environment as an opportunity to help those businesses - like yours - be well-positioned for a sale on the other side of Corona.
Knowing that our process takes 4-6 weeks to put together a defensible, accurate opinion of value that leads to a well-informed decision of whether or not the timing is right to move into M&A and that it then takes another 14-18 weeks to properly prepare for the scrutiny of marketing and due diligence, we are actually encouraging folks like yourself to enter the 18- to 24-week front end of the process precisely at this time so that you’ll be “ready to market” on the other side of this pandemic. I’ll suggest to you that many of your peers will do as you’ve suggested and wait, meaning they’ll all be coming to sell at the same time beginning roughly 6 months after this is over. Doing so will give buyers a lot of choice that’ll be used as leverage against sellers. By pressing forward at this time and being the first to market in the post-COVID-19 period, you are likely to be the only seller in your space at that time which will give you considerable leverage in negotiations. Couple that with 0% interest rates, and a quality business like yours will be irresistible to the pent-up demand some buyers will be feeling.
At GaP, preparing owners/businesses to sell is all we do, and I’d encourage you to consider my points and visit with us to see if kicking off this process with us now might be a wise decision. You owe it to yourself and your company to intentionally determine the timing of the pre-marketing, pre-sale activities required to position you for the best personal and business outcomes.
If you elect to wait as you and your friends discussed, we’ll respect that and look to visit another day. I just felt it necessary to expound on our viewpoint as it seems to differ from that of your other advisors.
Wishing you well,
If any of this rings true to you, I’d encourage you to take our Sellability Assessment and talk with us to see if your business makes the cut as one who can still command a great exit in this M&A environment.
Click here to take our Sellability Assessment. We'll be in touch quickly to discuss the results.
Gilbert & Pardue Business Advisors (GaP) is a Houston-based business advisory firm serving lower middle and middle market owners from coast to coast through representation for Mergers & Acquisitions (M&A) and through business value-growth services such as Fractional CFO, Advisory Board, Executive Coaching, and Consulting.
Matt Gilbert and Bret Pardue established GaP to provide owners of lower middle and middle market businesses – those businesses generally enjoying annual revenue of $5-$50 million – with the quality of M&A representation and value-enhancement services previously only available to middle, upper middle, and large businesses. GaP brings highly-experienced executives, sophisticated financial and marketing products, proven-effective processes, and fully-integrated expertise to every engagement. No other M&A firm serving the lower middle and middle market provides the quality of representation and transactional expertise that we do.