Selling (or Buying) a Business While In The COVID-19 Recession
With the economic impact of the COVID-19 pandemic becoming more visible every day, many business interactions taken for granted in the past are becoming more difficult, including such key events like buying or selling a business.
However, the good news is the business transaction market continues to be active with buyers and sellers, as a matter of fact, we currently have three deals under contract, and only recently obtained three more engagements to sell businesses, never mind that last month alone-generated 250+ buy-side inquiries by professionals looking for strong solid businesses.
Which Businesses Are In Demand?
We currently have an interesting cross-section of businesses under contract where both seller and buyer have agreed to transition the business – including a promotional products manufacturer, a landscape design firm, a mechanical HVAC company and a manufacturer’s rep firm – in essence, a large breadth of the types of businesses available.
In all cases, the buyers feel that these companies will continue to do well even in a recession. Regular customers providing continued revenue streams are what potential buyers are finding attractive.
Comparably to what our firm experienced 10+ years ago during the ‘great recession’, we are seeing similar buying behavior and preferences:
- Businesses with secured, recurring revenue streams
- Contractors & Contracting companies
- Companies proving essential services, such as HVAC
- Medical and Healthcare related manufacturer & distributors
- Consumer Staple Product Distributors or Manufacturers
- Food Manufacturing & Distribution Companies
- Ecommerce businesses & software companies
Company Valuations In Times Of A Recession
Taking into account that company valuations are not an exact science to begin with, these days – driven by Covid-19 – will make this task even more difficult. Having said so, most buyers will review an average of 3 years’ earnings, current YTD P&L and projections for three years. The key here is whether a company is likely going to bounce back after the recession or whether a downward trend started well before to the current recession.
Selling (or buying) a business can be done with all safe social distancing measures in place. Even though not desirable, there is no need to meet at all – unless both buyer and seller insist to meet. But even such meeting can be done under social distancing guidelines.
However, in many cases, we have closed deals with both parties being geographical distant from each other – mostly done by email, video conferencing, and phone calls – and the deals have worked out seamlessly.
Due Diligence can be a tad more difficult with COVID-19, however; again, mostly everything can be performed remotely.
An typical industry timeline for selling a business is twelve months. While on the surface, one would think it will take longer during a recession, our experience has been that this is not the case. As a matter of fact, in 2008, there were considerably more buyers than sellers, ready to move quickly on a deal, in particular, if it was a good, solid business.
At this point, we are seeing the same trends with buyer inquiries outnumbering sellers. Only last month, the buy-side inquiries were in excess of 250 contact points, with the trend already continuing this month.
The preparatory steps for a business seller are the same as in a normal time – typically three months. Obviously, this can depend on a number of factors, as it is always a team effort between the M&A Advisor, accountant and attorney. Most importantly, as we have said again and again, the preparatory step is the most import step by every seller in order to position a business in the best possible way. Our professionals are ready and on stand-by to help answer any questions you may have. We have more content related to the current Pandemic climate which you can see here or in our recently published book “The Road Beyond”
We have noticed a trend in the last 12 to 24 months already, namely, the ‘traditional’ closing at an attorney’s office to sign documents and exchange checks has increasingly given way to ‘virtual closings’ – documents being signed electronically and funds being wired. We project that this will become even more so the norm under the current conditions and widely accepted.
About A Neumann & Associates, LLC
A Neumann & Associates, LLC is a professional mergers & acquisitions and business brokerage firm having assisted business owners and buyers in the business valuation and business transfer process through its affiliations for the past 30 years. With an A+ Better Business Bureau rating, the company has senior trusted professionals with a deep knowledge based in multiple field offices along the East Coast and has performed hundreds of business valuations in its history. The firm’s competitive transaction fees are based on successfully completing transactions. For more information, please contact A Neumann & Associates at 732-872-6777 or Info@NeumannAssociates.com