How Has COVID-19 Impacted the M&A Market?

Jeff Thomas, CEO of Archetype Wealth Partners, and Matt Gilbert, Principal of GaP Business Advisors, share how the current economic environment is impacting both business owners looking to transition and third-party buyers.

  • COVID has created an amazing amount of stimulus, so if you're a seller, you will probably have a lower tax bill if you sell your business sooner rather than later.  Pre-COVID valuations drive the investment community, so you can still get the high valuation.
  • For buyers, the current environment is extremely attractive as interest rates have gone to the floor.  Buyers are thinking long-term and are looking through this season to see the opportunity and future trajectory of the business.

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[00:00:05] JEFF: Hi, Jeff Thomas here with Archetype Wealth Partners. I have a special guest. Today Matt Gilbert of GaP Business Advisors. It's a lower middle market investment bank. Matt what does that mean?


[00:00:18] MATT: Yeah, it means something different to everybody that hears it. Some people will call us business brokers - that's the low end term, the high end term is investment banking. Basically, we represent the owners of privately held businesses. That could be the founder, or it could be a shareholder group when they want to exit the business or when they want to sell the company to a third party buyer. That's our space.


[00:00:44] JEFF: Well we've had a lot of fun getting into each other over the last year or so because we really serve very much the same kind of client. Usually this sort of 10 million to 100 million valuation - you specify as 5 to 50 million revenue businesses.


But we are really serve the same kind of business owner clients, and so we were having a conversation recently. I was asking you some questions and I thought, “wow, the answers you gave were so unique and not at all what I expected” that I thought: let's shoot this video and answer some of these questions for other folks who might have those questions. 


So thanks again for coming in. First question is, of course, COVID is going on. We're in the middle of that. We're in Texas where things have just started to open up but it's tentative and other parts of the country haven't really opened up yet. And so my assumption was that in the M&A market for our kind of clients things have just completely shut down. Is it that true?


[00:01:42] MATT: No, not at all. You know if you think rationally about what COVID has done, very few people are thinking rationally right now. But you know COVID has has created an amazing amount of stimulus, right? So what's going to happen in the future? 


Taxes are going to go up. So I believe you're in the lowest taxation environment that you're going to see for the rest of your life right now. So if you sell a business what's the biggest expense. It's taxes right. So selling a business sooner rather than later you probably going to have a smaller tax bill right. 


The next thing about COVID is that if you're thinking rationally is interest rates have gone to the floor. Right. And so if you're a buyer there's a buyer for your business. It just became easier or more attractive to get a good return on the investment. But there's available capital which right now has a cost of near zero, right, and then the third thing that that buyers are thinking is “hey I like to acquire something when I know it's going to go up in value”. And so at this time, for most companies, revenues are depressed the situation isn't pretty. However pre-COVID valuations are still what's going to drive the investment community. 


So you can still get that high valuation -- and the buyer gets what they want which is a business that can only go up in the future. 


[00:03:13] JEFF: So they're really looking through this period.


[00:03:15] MATT: Do you remember the hurricane? Do you remember the Great Depression? And remember the [2008] financial crisis? I mean they were all periods like this and investors who think long term see through that and they're kind of looking for the silver lining if you will. They're making the lemonade out of these lemons.


[00:03:33] JEFF: I think that's helpful. And I think that's counter to what most people. That's very helpful.


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