The Situation

In just mid-February in our BTA Market Update, we reported that though activity had slightly dipped, small business sales were still holding at historically high levels and that while 2020 was not without questions, all signs showed that 2020 would be another banner year for small business sales…

Fast forward to today, and the COVID-19 pandemic has rocked our world in every way possible. We have no idea what the toll will be when all is said and done. It’s likely that we will see a number of casualties among small- and mid-sized businesses while others will be able to hold their own. And for a few, this crisis has provided new opportunities.

Right now, there are more questions than answers, but there are indications that some owners and potential buyers remain positive about long-term M&A activity. Let’s take a look at some of the recent commentary.

Key Takeaways

The National Center for the Middle Market Strategy & Growth’s recent report COVID-19 and The Middle Market posits that while the coronavirus pandemic will derail middle market performance, executives believe they have the resilience to recover. Here are their four main insights:

Insight 1: The immediate impact of COVID-19 is negative for most—and catastrophic for some—middle market businesses.

Insight 2: Growth projections for both the short- and long-term have plummeted.

Insight 3: Supply chains and access to cash are the most difficult challenges to manage.

Insight 4: Despite challenges, most middle market executives are confident in their resilience.

It’s encouraging that with all of the doom and gloom we’re experiencing right now, executives see light at the end of tunnel. Additionally, citing historical context they add:

“Though confidence numbers plummeted from three months ago, they currently remain above levels seen coming out of the 2007–2009 Great Recession. More telling, most middle market companies believe that, when the time comes, their recovery will be swift, with four out of five firms saying they will be able to operate at full capacity in six months or less.”

Pitchbook’s recently released Analyst Note: COVID-19, the Sell-Everything Trade, and the Impact on Private Markets, assesses what’s in store for private equity (PE) and venture capital (VC) firms during the impending economic slowdown and dissects historical performance and fundraising data, highlighting the key differences from where we are today.

The report says that we will “undoubtedly see a slowdown in PE transaction volume…" However, "private debt funds are indeed sitting on record levels of capital to lend throughout the middle market … and that many large-cap businesses are standing on solid footing to withstand some sort of economic shock.”

The Bottom Line

If we’ve learned anything from the last couple of months, it’s that there are innumerable external factors, beyond our control, that can impact our businesses and the timing of our exit.

If you have been planning to sell or transition out of your business, the next phase of your life now may seem like a distant dream, and you may feel discouraged. It’s completely understandable. 

But there are positive signs for the long-term despite the situation we’re in now. So while your exit window may be temporarily closed, now is the time to rebuild your business with your exit in mind and be ready to go when the transaction market reopens.

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