COVID-19 Pandemic: This Too Shall Pass
After two months of a global economic shutdown caused by the COVID-19 pandemic, the outlook for lower middle market mergers and acquisitions remains uncertain. Buyers, sellers, lenders, and advisors continue assessing the long-term economic impact, making it difficult to predict when transaction activity will recover.
Many strategic buyers have adopted a wait-and-see approach to acquisitions. Rather than pursuing growth opportunities, they are preserving liquidity, stabilizing operations, and protecting their core businesses. Financial buyers, including private equity firms, have also shifted their attention inward. They are supporting existing portfolio companies, strengthening balance sheets, and ensuring those businesses have sufficient capital to weather the economic disruption.
Potential sellers should not despair. According to PwC’s report, Succeeding through M&A in Uncertain Economic Times, U.S. public companies now hold more than four times as much cash as they did a quarter-century ago. Additionally, private equity firms control record levels of undeployed capital, commonly referred to as “dry powder.” Although many investors have temporarily paused acquisitions, they must eventually deploy that capital when market conditions stabilize and confidence returns.
Business owners contemplating a liquidity event should begin planning now instead of waiting for conditions to improve. Early preparation allows owners to strengthen financial reporting, improve operations, and identify opportunities to maximize value before entering the market. Additionally, they should consult with an experienced M&A advisory team to develop a thoughtful exit strategy and prepare for buyer scrutiny.
A decline in financial performance resulting from the COVID-19 pandemic is both expected and understandable. Buyers will recognize these temporary disruptions, but they will closely evaluate how your company and management team respond to adversity. Companies that preserve customer relationships, control costs, adapt operations, and maintain profitability will stand out in the marketplace. Those actions will strengthen buyer confidence and help maximize value when M&A activity resumes.
