The Situation

M&A activity in the second quarter of 2020 continued to decline, according to PitchBook’s North American M&A Report Q2 2020, with $336.8 billion over 2,025 transactions. This is a substantial decline from the record activity seen in recent years – the report calling it “the canary in an M&A coalmine.” QoQ declines were 41.1% and 24.2% for deal value and count, respectively, compared to an already slow Q1 2020.

The Details

According to the report:

  • The U.S. seems to be on track for a W-shaped recovery with a potential second wave of COVID-19, which “threatens to further drag down M&A activity and inflict a heavy human toll.”
  • “Deals are holding steady at the top and bottom of the spectrum.” At the top, the technology and healthcare sectors, which have largely done well during the pandemic. In distressed sectors, such as the oil & gas industry, deals are happening as a matter of survival.
  • The COVID-19 pandemic has propelled add-on acquisitions to new heights: PE add-on deals accounted for just over 70% of all buyouts in the quarter.
  • Acquirers have resorted to using alternative valuation methods to assess earnings as it’s difficult to accurately value assets during the COVID-19 era.

Key Takeaways

The fallout from the impact of the virus remains to be seen. There is still so much uncertainty around a second wave of the virus, future shutdowns, stimulus money, etc. for both business owners and buyers. “Firms will need to adjust, adapt, and innovate if they hope to surmount these issues and complete transactions,” posits the Pitchbook report, and we couldn’t agree more.

Baby Boomer business owners who have been holding on may be affected the most. Biz Buy Sell’s Second Quarter Insight Report suggests that: “COVID-19 has served as a wake-up call for Baby Boomers…” and “we’ve barely scratched the surface of Baby Boomer supply and as the pandemic continues, any increase in uncertainty will propel these owners into the market.”

Without exit plans in place, however, these owners could be at risk of losing out on extracting the value of the businesses that they have spent their lives building.

We’re seeing that the pandemic is already starting to affect some owners’ planned exits. According to a recent BizBuySell survey, 16% of business owners plan to exit their business earlier as a result of the pandemic, while 20% anticipate exiting later than planned.

The Bottom Line

Has the pandemic affected your exit timeline? Whether it has or not, as you work to regain business value you may have lost, now is a perfect time position the business and yourself for a successful exit when the economy rebounds.

Though the outlook is somewhat grim if we look at the numbers from the beginning of the year, deals are closing and will still close. And, if you want to be among them, you need to prepare.Potential buyers want to know how a business performed during this unprecedented time. What’s your business’ pandemic recovery story? How quickly were you able to rebound, rebuild, and resume growth? You’ll need to be ready with those answers.

While your exit window may be temporarily closed, you need to be ready when it opens again.

Make Sure You're Ready

Register for our next workshop:

Rebuild Your Business with Your Exit in Mind

This workshop is about surviving and thriving in this new world and planning for your freedom and your life after your business.



Ready to Become a Member?

Apply for one of our memberships today to gain access to all the resources you need to secure your deal of a lifetime!

Apply Now