The COVID-19 pandemic has brought many uncertainties to Main Street and Wall Street alike. As the public markets continue to perplex the most seasoned investors, many private business owners also wonder about the implications of COVID-19 on private business valuations. Another question more urgent for those owners eyeing a sale of their business in the near future – how does the pandemic impact my ability to sell?
Since mid-March, the public markets have experienced a significant sell-off in light of the uncertainties brought on by the pandemic, only to be followed by an almost more dramatic recovery. What might this suggest about the impact on private company valuations? The impact of the market volatility on private company valuations show that while private company valuations won’t necessarily correlate to public market performance, public equities are generally a good leading indicator. If public equity performance in your sector or amongst your potential set of buyers has remained strong, chances are your company’s valuation will remain strong. Ultimately, the valuation of your company will rely on the pillars of value specific to your company, namely your growth, margin, and risk profiles.
M&A Transactions During a Pandemic
As the world seemed to grind to a halt these last few months, M&A transactions followed in-kind. While those transactions approaching the finish line still closed, timelines for many companies at earlier stages in the sales process were extended as a result of buyers taking a wait-and-see approach while the pandemic plays out.
Despite the current delay, a silver lining still exists for many business owners considering the sale of their company. Most importantly, sellers of healthy businesses that benefited from, or were minimally affected by the economic downturn will likely have the option to consider starting a sales process later this year. Additionally, the capital available for private equity firms to deploy continues to rise faster than it can be invested. Meaning, there is more money available and there is high demand by private investors for quality companies. We are seeing financial buyers exhibiting more flexibility, both in terms of deal structure and size thresholds. Many buyers are now considering non-control deals as well as buyouts of companies with lower EBITDA than in the past.
What You can do Now
Here are a few suggestions that will help any business, regardless of whether they are looking to sell this year or in the future:
- Measure What Matters
Establish KPIs and track your metrics carefully during this time. This is not only important to buyers but can also help you refocus on potential improvement opportunities.
- Invest In Your Business
The scarce commodity in the market continues to be quality, privately-held companies. If you can afford to do so, invest in your company now.
- Document and Review Your Contingency Plan
Ensuring that specific instructions for operation are in place could help to ease a transition for management and other interested parties in the event the owner becomes unavailable. Also, if you have a buy-sell agreement, consider updating this document every few years.
- Think About Successorship
If you have a successor in mind, have candid conversations about goals, desires, and expectations for the company. If you do not have a successor, establish a relationship with an M&A advisor now so they know you and your business when the time comes to sell.
- Focus On Your Company Culture
Strong company culture can help ensure the retention of key employees as well as clients. In these uncertain times, how you act today will be remembered by those that have helped you build your company.
- Review Your Intellectual Property
Update and document all company internal processes, trade secrets, and other IP. Remember not to overlook invention assignment agreements!
While not an exhaustive list, these suggestions can help to ensure your company is viewed in the most attractive light when your time comes to step away from your business.
Aldrich is Here to Help
For more in-depth information, check out the Aldrich webinar presentation slides on from our presentation entitled: Business Continuity: COVID-19 Impact on Private Company Valuations and Mergers & Acquisitions.
The entire Aldrich team is monitoring for updates and guidance and will be updating our COVID-19 Resource Center with more information as it becomes available. If you have any questions about mergers and acquisitions, reach out to your Aldrich Advisor or visit our Business Advisory page.
Meet the Author
Senior Business Advisor
Brian Andreosky, CEPA
Aldrich Capital Advisors LP
Brian Andreosky joined Aldrich in 2019 and is dedicated to helping business owners transition their companies. In this role, he provides exit planning services to help business owners find the right solution to transition and maximize the value of their business. Brian is a member of the Exit Planning Institute (EPI). Prior to joining Aldrich,... Read more Brian Andreosky, CEPA
- Closely-held business and owners
- Business succession planning
- Business planning and analysis
- M&A and capital raise transactions
- CEPA, Certified Exit Planning Advisor