The Pandemic End Game: Preparing for a Resurgent M&A Market

The Pandemic End Game: Preparing for a Resurgent M&A Market

The Pandemic End Game: Preparing for a Resurgent M&A Market

The Time is Right to Consider a Sale

Many economists are comparing the current pandemic situation to a natural disaster rather than a cyclical downturn. The economy was shut down quickly in March 2020 for a healthcare crisis and not for any underlying financial system issue. As a result, when the lockdowns are lessened or removed and the virus risks are understood or reduced, the economy will likely improve as quickly as it was shut down.  

The foundation for a resurgent M&A market is the U.S. economy’s resilience demonstrated over the last six months of 2020. The year began with a strong economy and an M&A bull market where sellers were achieving attractive valuations for their businesses. When the U.S. economy was shut down, we rapidly descended into a recession and a short period of high unemployment. Since mid-2020, the economy has started to recover quickly, with some sectors recovering faster than others.

Vaccines and the successful inoculation of a large portion of the U.S. population are key to continue this economic improvement. The arrival of the vaccines has quickly improved the outlook for the economy. The rapid production of a number of effective vaccines and the widespread distribution and inoculation of the U.S. population will lead to a change in consumer and business owner psyche.

A recovery in the leisure, hospitality and travel sectors coupled with a more positive consumer and business sentiment will lead to more rapid growth and further improvements in the economy. According to Goldman Sachs, annual GDP growth in 2021 could reach 5.4%, up significantly from the negative 3.5% annual GDP initially reported in 2020.

Even through the pandemic, the private equity (“PE”) sector has adapted to the current economic environment and has begun preparing for a rapid recovery in M&A.

PE funds are actively hunting for new deal opportunities and are ready to invest the estimated $1.5 trillion in undeployed PE capital commitments.

Furthermore, large strategic buyers with access to the public debt and equity markets have been very active in raising pools of capital.

All of this new capital is available for M&A transactions and ready to make acquisitions. As a result, the demand for M&A deals is expected to be high during 2021.

Finally, there is a real possibility that the current capital gains tax rate could double with the Democrats in control of the Presidency and the Congress. However, given the currently high unemployment of 6.7% and the pandemic’s continuing effects on the economy in 2021, it is less likely that taxes will increase this year, but it is entirely possible that tax increases will occur in 2022 or 2023.

Given the improving economy, the vaccine rollout, the large pools of capital looking for deals and the potential for capital gains increases, there is a window of opportunity for sellers in 2021. All business owners with a desire to sell should consult with their advisors to develop an exit strategy and properly prepare for an M&A sales process.

What Preparation is Necessary to Take Advantage of the Resurgent M&A Market?

Well-prepared companies are better able to attract buyer attention and achieve higher valuations in the M&A market. Thinking like a buyer and considering how to position the company with potential acquirers is critical to a successful company sale. Preparation is key.

The remainder of this article will highlight important issues to consider in preparing for a sale. It is best to work with a skilled investment banker to evaluate the readiness of your company, determine the important value drivers and review your strategic options. Once that is accomplished, specific preparations can be made for an M&A sale process.

There are a number of basic preparations that should be made before any sale process. In addition, in the current pandemic environment, there are a number of pandemic-specific preparations that should be made as well.

The basic M&A process preparations include:

This is an initial summary of the basic preparations necessary for a sale. Work with your advisory team to address the specific preparations that are necessary to prepare for the sale of your business.

Additional preparation is necessary to address issues that are unique to the pandemic period. Many of these pandemic issues require the collection of unique information, so cultivate an awareness of what could be asked by buyers and why. Anticipating what additional risks and concerns will be articulated by the buyers will be important to develop the proper information package and address buyer concerns.

Even with the pandemic, the current deal environment provides an excellent opportunity for business owners to contemplate a transition event for their Company. In the short run, the pandemic can still pose deal challenges, but the investment banking community is developing work-around strategies to address these challenges. In the meantime, all business owners with a desire to sell should begin preparing their business for a sale process. Preparation is key. Keep in mind that the typical M&A deal takes six to nine months from engagement to closing. If you want to consider a Company sale, it is critical that you work with your advisor to prepare your Company for an M&A process. If you want to sell in 2021, the time to begin is now.

Terrel Bressler is a Managing Director at Prairie Capital Advisors, Inc. He can be contacted at 312.348.1323 or by email:

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