“Energy and persistence conquer all things.” -Benjamin Franklin
At the height of the Great Recession back in 2007-2009 the financial crisis that precipitated the economic decline and market sell-off was largely driven by a collapse in real estate mortgages and other financials derivatives linked to bank lending. And while some link the recent Corona Virus of 2020 to The Great Recession they are not the same. And here’s why it’s important if you considered selling your business this year but have pulled back.
The Great Recession was a financial crisis causing a near collapse of our banking system, and when banks fail, the economy is not far behind, we all know this. But this crisis as we also all know is a health scare crisis, not a financial one, and before the government and states closed down our economy, we were the envy of the globe, a shining star leading with record low unemployment, and record high private business asset valuations. To say the least, things were good. But then everything changed, or so we thought.
What’s interesting is that while we have seen an initial slowdown in 2020 M&A deal activity at the beginning of the crisis as many unknowns lingered, most of the slowdown was brief. Once buyers and sellers got familiar with working remotely together using Zoom for meetings and real-time online software for data exchange, the market demand for M&A deals swiftly returned. What we now see is an explosion of new buyer inquiries greater than the post Financial Crisis period which ended more than 10 years ago. In fact, to our surprise in the last 3 months since the initial pandemic lockdown Janas team associates have collectively received hundreds more emails, newsletters, phone calls and texts from well-funded buyers each looking to eagerly compete for seller opportunities.
But how can the market turn up so quickly?
According to recent industry studies from respected sources like Axial, Pitchbook and Bloomberg, that tract M&A activity regularly Private Equity funds are sitting on a record $1.5 Trillion dollar pile of cash coming into 2020 with every dollar looking for a home. And what makes it so sticky is that if equity funds don’t deploy that cash, they may lose access to it permanently. Greater still, and unlike the Financial Crisis in 2008, bank lenders today are far healthier and eager to assist PE firms, and us with deal flow lending adding even more fuel to the market fire. So, what does this mean to you?
It means that seller Exit Plans which included selling a private business this year but got put on hold during the pandemic are each welcome back to the table, with buyers lined up waiting to make a competing offer like never before for a chance to acquire your business. And that’s the surprise no one had expected during this health crisis. Many sellers who delayed plans to engage their investment banker and Exit the business until after the Covid-19 pandemic subsided, didn’t expect the current market’s bursting buyer demand would make their business more attractive not less in the months ahead. And the reason as we are told is simple. Buyers understand that most businesses took a Corona Virus hit to sales and profits this year.
But they also understand that most businesses will stage a comeback in early 2021. This means you can still engage to sell your business starting now at a higher price. For example, when you engage Janas to market your company we will work with you step by step to specifically identify Covid-related expenses and isolate them. Buyers will gladly look forward to future sales and profit run rates as if the virus never happened.
In summary, our point is simple. Despite the pandemic, with the growing abundance of investment capital looking to acquire your business, it makes perfect sense to take a closer look at your Exit plan, if you have one, and give us a call. If you trust good advice check your calendar, and let’s set up a quick Zoom call or phone chat. We can tell you in 5 minutes exactly what we’re seeing and hearing from the field and why our firm believes Exiting a business now is still the golden ticket for you and the important stakeholders in your life. Because it’s like Ben Franklin said; “Energy and persistence conquer all things.” So, let’s do this thing.
About the author: Rick Andrade is an investment banker at Janas Associates in Pasadena, where he helps food CEOs buy, sell, and finance middle-market companies. Rick earned his BA and MBA from UCLA, along with his Series 7, 63, & 79 FINRA securities licenses. He is also a CA Real Estate Broker, a volunteer SBA/SCORE instructor, and blogs at www.RickAndrade.com on issues important to middle-market business owners. He can be reached at RJA@JanasCorp.com. Please note this article is for informational purposes only and should not be considered in any way an offer to buy or sell a security. Securities are offered through JCC Advisors, Member FINRA/SIPC.