There is no doubt that just as the Pandemic has created major economic disruptions in most sectors of the economy Merger and Acquisitions has been impacted as well. Just as the U.S. economy has fallen into a “K” Economy as most economists are calling it M&A has been following the same path.
The Top of the K Economy in M&A
While from March through September M&A in the middle market was incredibly slow, but by late fall it had picked up significantly and returned almost to pre-pandemic times by November according to Goldman Sachs for companies in the Top of the K:
- Business Services
- Government Contracting
- Healthcare and Pharma
Most of these companies do not require close contact with clients. They are able to have their employees work from home and are providing services that are needed or have a longer term outlook than those in the bottom of the K.
The Bottom of the K Economy in M&A
Unfortunately, it has been a different story for those companies in the bottom of the K. Companies in:
- Brick and Mortar Retail
- Restaurant Chains both big and small
- Theme Parks
- Cruise Lines
These industries have taken huge hits to revenue and profit cannot operate easily in a Pandemic and cannot have their workforces telework.
What Does This Mean For The Potential Seller Or Buyer?
It means that if you are a seller at the top of the K your EBITDA multiples have not really changed from before Covid. In many ways if you have good EBITDA and Revenue with a solid forecast and reasonable back log you will be able to exit with strong preparation within a year of going to market.
If you are a buyer either Strategic, a PE or Family Office there will be deals, but not at post Covid Discounts.
For sellers in the bottom of the K with declining revenue and cash flow, taking on more debt to you will see very Opportunity Driven PE Companies that have raised large Distressed Company Funds to attempt to buy you up for very low valuation multiples if you need to exit. For those who can afford to wait out the Pandemic impacts in the Bottom K Industries it will be best to have a strategic and tactical plan to delay at the bottom of their market.