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PrimeGlobal member firm Schneider Downs looks at how Covid-19 has affected the Mergers & Acquisitions market.
The two-month COVID-19 economic crisis has significantly disrupted the M&A deal market. While there are examples of transactions that have closed, most transaction processes that were not in their final stages have slowed materially as buyers and sellers have focused on preserving their companies and emerging from the crisis.
In this environment, though, there are concrete steps that both potential buyers and sellers can take to maximize their potential gains from an M&A strategy as economic activity re-emerges.
Establish a framework to quantify the financial impact that the COVID-19 pandemic is having on the business, isolated from seasonal factors or other non-COVID influences. A good place to start is by generating bi-weekly or weekly historical P&Ls trending against 2020 periods and the same periods last year. At a very high level, buyers and financing sources will look at pre-COVID and post-COVID results as a way to understand a business’s potential under “normal” operating conditions.
Develop and track key non-financial indicators to provide a snapshot of the underlying factors that drive recovery. Key indicators could include sales metrics such as quote volumes, requested order lead-times, sales funnel, or operational metrics such as capacity utilization or inventory turns. Understanding these indicators can help sellers determine when to kick-off a sales process and give buyers a more complete window into the health of the business.
Determine business pain points that were discovered during the crisis, articulate and begin to execute a strategy to address the challenges and de-risk the business. Examples include management gaps, customer or supplier concentrations or obsolete technology. If sellers resolve the issues in advance of a sale process, the de-risked business has the potential to be more valuable. Buyers can use their respective pain points as a strategy for identifying targets that would help transform their business model.
Over the next few weeks, Schneider Downs Corporate Finance will issue a series of articles on the impact that COVID-19 is having on the M&A market. Next up in the series, we will examine the impact on deal volume and value.
Schneider Downs & Co., Inc.
Schneider Downs is a top regional accounting and business advisory firm located in the northeastern part of the United States with a significant international reach. For more than 60 years, we have provided professional services to public and private companies, nonprofit organizations, professional associations, service firms and government entities across the United States and around the world. We have more than 450 employees and 42 shareholders and offer more than 80 services with dedicated teams from five business units: Assurance and Tax Advisors, Business Advisors, Corporate Finance Advisors, Technology Advisors and Wealth Management Advisors.Learn more