Bundy Group was recently asked to participate in a roundtable discussion on the topic of how the pandemic has changed due diligence processes for the Mergers & Acquisitions (“M&A”) market. Bundy Group was asked to participate because of our 30-year track record and our recent demonstrated success in getting a client transaction closed during the midst of the COVID-19 pandemic.
Some key takeaways from the discussion are as follows:
- The COVID-19 pandemic has resulted in substantial changes for business owners and deal professionals and has introduced new, but in some cases temporary, challenges for deal processes.
- Government loan programs are one such (temporary) change that introduces a new layer of complexity in navigating a deal process. Bundy Group has firsthand experience navigating these programs with prospective buyers and capital providers. While there is not a “one-size-fits-all” approach to handling these loans, there are ways to address the complexities without halting a process.
- One more permanent change to deal processes has been the accelerated use of technologies like web conferences, video tours, and online content. While nothing will ultimately replace face-to-face discussions, diligence processes will likely evolve going forward by incorporating more “screen-to-screen discussions”, virtual tours, and requests for digital content earlier on in processes.
- As business owners think about how to best prepare for a capital raise event or an M&A transaction in today’s market, building out robust metrics and actionable information around all aspects of business performance will be paramount. Understanding how businesses have been impacted by COVID-19 will require looking back at data from past market disruptions (where possible) and a heavy dialogue around profitability, cash flow, and balance sheet strength. In addition, expectations around detailed analysis and financial projections will be heightened as parties look to understand the risk of deploying capital into a business today.
- When is the right time to start (or restart) a process? The answer to this question is a bit of art, a bit of science, and highly situational. Broadly speaking, the narrative from buyers and capital providers is starting to change as more and more parties see signs of an economic restart. Depending on end-market, overall deal flow is starting to pick up despite being well off a “normal pace.” With that being said, buyers and capital providers are expected to be highly selective in deploying new capital as they seek attractive businesses in resilient end-markets.
- As with every market disruption, impacts on valuation are front of mind for all business owners contemplating an M&A event. The topic of valuation is complex and influenced by multiple factors, including fundamental performance characteristics, industry end-markets served, appetite of buyers and lenders for deploying new capital, and overall M&A activity in the industry, to name a few. As business owners contemplate valuations and strategy for M&A activities, it is important to stay connected to your networks and to seek advice from industry professionals specializing in your space. While M&A activity was substantially halted over the past couple months, certain industries have remained very active, including several of Bundy Group’s areas of specialization.
There is no doubt that the M&A market and due diligence processes have been heavily impacted by the current pandemic. While many processes have been put on hold, it is clear that there are still buyers and capital providers willing to pursue new opportunities so long as certain criteria are met. Whether you are looking for growth capital or to sell your business, Bundy Group has been fortunate enough to remain very busy during this time and would welcome the opportunity to share our thoughts on how to best navigate M&A activities in the environment so many now refer to as the “new normal.”