Small M&A Deal Market Dynamics: July 2020

I really appreciated the chance to contribute to a recent article, Pandemic injects some reluctance into small business M&A market, by Mark Sanchez at Mibiz.com, and wanted to summarize a few factors affecting the M&A transaction market presently that we discussed:

  1. Sellers of businesses have pulled back. This is entirely understandable; many owners are concerned about their business, whether it be regaining lost ground or capitalizing on new opportunities that have arisen due to COVID-19. The flip side is that this means that there is a lack of quality sellers on the market and those owners that have decided to sell are often receiving enormous amounts of interest!
  2. Buyers are aggressively seeking out new transactions. Calder/SBDA are processing dozens of new buyer inquiries daily – individuals, strategic buyers, private equity, and family office buyers. Economic chaos such as that which has been borne upon us by COVID-19 results in the creation of new entrepreneurs. Additionally, private equity and family office buyers continue to have mandates and liquidity, and are seeking opportunities.
  3. Banks are being cautious. Understandably, banks are going to evaluate each business transaction based on how it has performed through 2020 and how it is likely to fair into the future. Buyers and sellers can expect more lender diligence on the business opportunity and purchaser, respectively. If you can negotiate a transaction without a bank, you will greatly expedite the time to closing.
  4. Buyers are asking for longer due diligence periods. Whereas 60 days for due diligence may have been more typical pre-COVID, we are now seeing due diligence and exclusivity clauses in LOIs ask for 90+ days.
  5. Buyers are being FAIR! As a seller, it is understandable to think that you might be low-balled at a time like this. While it’s true and that many “low-ball” buyers come out, easily 85%+ of buyers out there want a fair deal. After all, they have the wisdom to know that they need and want the seller’s cooperation and assistance in a successful transition!
  6. Deals are getting done. I continue to be surprised and proud of the resilience of the American entrepreneur. Times like this are amazing for the display of grit, courage, and innovation. With persistence and creativity, continuity and re-invention will continue in small business transitions!
Buyers are aggressively seeking out new sell-side opportunities!
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