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volatility; uncertainty

COVID-19 Pandemic: This Too Shall Pass

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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.

COVID-19 Impact on M&A

COVID-19’s Impact on M&A

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Many merger and acquisition processes are on hold while buyers and sellers seek greater clarity on COVID-19’s health and economic effects. COVID-19’s impact on M&A continues to reshape transaction planning, buyer expectations, and deal execution. Although transaction activity has slowed, companies continue preparing for future opportunities as markets adjust to rapidly changing conditions.

Business owners considering a sale should expect the pandemic to influence nearly every stage of the acquisition process. Buyers, lenders, and advisors are reassessing risk, valuation, and transaction structures. As a result, successful transactions will require greater planning, flexibility, and collaboration than before.

Several areas now deserve increased attention.

Preparing for Sale. Business owners should determine whether now is the right time to pursue a transaction. They should also evaluate current valuations and consider whether buyers will recognize the company’s long-term value despite recent disruptions.

Timing. Transactions will likely require additional time to complete. Travel restrictions, remote work, lender requirements, and extended due diligence may delay the closing process.

Due Diligence. Buyers will conduct more extensive due diligence across financial, legal, operational, and commercial matters. They will closely examine force majeure provisions, supply chain risks, emergency preparedness, employee matters, and insurance coverage.

Acquisition Agreements. Buyers and sellers should expect increased negotiation over risk allocation. Acquisition agreements may include expanded representations and warranties, interim operating covenants, earn-outs, additional closing conditions, termination rights, and special indemnification provisions addressing COVID-19-related findings.

Financing. Buyers should confirm that attractive long-term financing remains available before committing to a transaction. Lenders may impose additional underwriting requirements or modify financing terms as market conditions evolve.

Business owners should work closely with experienced M&A advisors throughout this period. Professional guidance can help navigate market volatility, manage transaction risk, and position a company for a successful sale when conditions improve.

The Doomsday Ratio

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Is your company prepared to survive a doomsday scenario? Economic uncertainty can emerge quickly and challenge even well-managed businesses. Without meaningful financial measurements, business owners may struggle to understand how their companies are truly performing.

Financial ratios provide objective benchmarks for evaluating a company’s financial health. They convert information from the income statement and balance sheet into standardized measurements. Owners can compare those measurements over time, against competitors, or across the broader industry. These comparisons often reveal strengths, weaknesses, and trends that traditional financial statements may not immediately identify.

Liquidity ratios deserve special attention during periods of economic uncertainty. These ratios measure a company’s ability to satisfy short-term obligations without raising additional capital. Strong liquidity provides flexibility, supports daily operations, and helps businesses withstand unexpected disruptions.

Common liquidity ratios include the current ratio, quick ratio, days sales outstanding, and the Doomsday Ratio. Each ratio measures liquidity from a different perspective and provides valuable insight into financial stability.

The Doomsday Ratio offers the most conservative measure of liquidity. It assumes the worst possible operating environment and ignores every current asset except cash and cash equivalents. The ratio is calculated by dividing cash and cash equivalents by current liabilities. The result indicates whether available cash can satisfy short-term obligations without relying on receivables, inventory, or external financing.

The Doomsday Ratio becomes even more valuable when tracked over time. A declining ratio may signal increasing financial pressure before more serious problems develop. An improving ratio may indicate stronger cash management and greater financial resilience.

No single financial ratio tells the entire story. Business owners should evaluate multiple ratios together and consider industry benchmarks when assessing financial performance. An experienced M&A advisory team can help interpret these measurements, identify potential risks, and recommend strategies that strengthen financial performance before a crisis occurs.

The Strategic Exit

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If you are considering selling your business, strategic buyers should rank at the top of your prospective buyer list. These buyers often pay premium valuations because they acquire businesses for strategic, rather than purely financial, reasons.

Strategic buyers operate in the same industry or serve related markets. They may include competitors, suppliers, customers, or companies offering complementary products or services. Their primary objective is to acquire businesses that strengthen existing operations and create long-term shareholder value. Consequently, they often evaluate acquisition opportunities differently than financial buyers.

Strategic buyers pursue acquisitions for many reasons. They may seek economies of scale, expanded product offerings, new geographic markets, additional distribution channels, or enhanced operating capabilities. In many cases, a single acquisition may accomplish several strategic objectives simultaneously.

As a result, strategic buyers frequently become some of the most qualified purchasers of middle market companies. More importantly, they often pay higher purchase prices than financial buyers. They recognize opportunities to create value through operational efficiencies, cost savings, revenue growth, and business integration. Those synergies increase the value of the combined organization and often justify premium valuations.

Furthermore, strategic acquisitions frequently provide a cleaner ownership transition. Many strategic buyers expect the seller to exit after a reasonable transition period. They also eliminate overlapping functions and integrate administrative, operational, and back-office activities. Because they understand the industry, they often complete due diligence more efficiently and move transactions toward closing with greater confidence.

Customers may also benefit from a strategic acquisition. Expanded product offerings, broader service capabilities, greater financial resources, and improved operational support often create a stronger organization. Consequently, employees, customers, and business partners may all benefit from the combined company’s increased capabilities.

Not every acquisition follows a traditional model. Strategic buyers sometimes pursue acquisitions primarily to accelerate revenue and earnings growth. Likewise, private equity firms frequently complete strategic add-on acquisitions through existing portfolio companies. An experienced M&A advisory team understands these different buyer motivations, identifies the most qualified acquirers, and manages a competitive sale process designed to maximize value and achieve a successful transaction.

Balance Sheet Analysis

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Business owners often focus on the purchase price and overlook the importance of the balance sheet when selling a company. However, purchase price tells only part of the story. Working capital may significantly increase or decrease the seller’s proceeds at closing. Therefore, buyers and sellers should address working capital early in the transaction process.

Most merger and acquisition transactions determine value using a company’s earnings, cash flow, and future growth prospects, while applying a discount for risk. However, buyers also evaluate the balance sheet to understand the company’s financial position. Consequently, negotiating balance sheet target values should become an important part of every middle market transaction.

Working capital generally equals current assets less current liabilities. In an acquisition, however, transactional working capital represents the normal operating capital required to run the business after closing. Buyers expect to receive a business with sufficient working capital to continue normal operations. Accordingly, the purchase agreement usually includes a target working capital amount.

Transactional working capital typically excludes cash, cash equivalents, and interest-bearing debt. Instead, the calculation focuses on operating assets and operating liabilities. Common components include accounts receivable, inventory, prepaid expenses, accounts payable, and accrued liabilities. Every transaction requires careful analysis because each business operates differently.

Determining an adequate working capital target requires both financial analysis and sound judgment. There is no universal formula that applies to every business or industry. Instead, buyers and sellers typically analyze historical monthly balances to establish a normalized working capital target. Even then, the parties often reach different conclusions.

Not surprisingly, buyers usually seek a higher working capital target. Conversely, sellers often prefer a lower target to maximize cash proceeds at closing. These competing objectives frequently make working capital one of the most negotiated provisions in the purchase agreement.

An experienced M&A advisory team may help bridge those differences. Advisors understand market practices, identify unusual balance sheet items, and negotiate adjustments that protect their clients’ interests. Moreover, thoughtful working capital negotiations may increase a seller’s proceeds by five to fifteen percent of the total purchase price. For many business owners, that improvement represents one of the most valuable outcomes of a well-managed transaction.

The Value of Confidentiality

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Confidentiality forms the foundation of every successful merger and acquisition transaction. Without it, buyers and sellers expose themselves to unnecessary business, financial, and competitive risks. Consequently, protecting confidential information should remain a top priority throughout every stage of the transaction process.

Confidentiality becomes especially important when protecting employees, customers, vendors, competitors, and the public. It also plays a critical role when a transaction involves publicly traded companies and the potential misuse of material nonpublic information. Therefore, every participant should understand the importance of safeguarding sensitive information from the beginning of the process.

Middle market business owners often take different approaches to employee communication. Some owners disclose very little information before closing and confide only in trusted advisors. Others carefully manage the timing and content of communications to reduce uncertainty and maintain employee confidence. Regardless of the approach, owners should control the message and communicate strategically.

Premature disclosure may create significant challenges. Employees may become distracted or seek other employment. Customers and suppliers may question the company’s long-term stability. Competitors may also exploit uncertainty to pursue valuable employees, customers, or business opportunities. As a result, maintaining confidentiality protects both enterprise value and business continuity.

A comprehensive nondisclosure or confidentiality agreement provides an essential layer of protection. The agreement should prohibit unauthorized disclosure of the seller’s identity, financial information, operating results, customer relationships, and strategic plans. It should also protect the proprietary knowledge, processes, and competitive advantages that distinguish the business from its competitors.

However, a confidentiality agreement alone cannot guarantee discretion. Buyers, sellers, advisors, lenders, and other participants must consistently follow established confidentiality procedures throughout the transaction. Accordingly, experienced M&A advisors carefully manage the flow of information and limit access to those with a legitimate business need.

Although many parties view confidentiality agreements as routine documents, they represent much more than a transaction formality. Strong confidentiality practices preserve business value, protect stakeholder relationships, and increase the likelihood of a successful closing.

Quality of Data Drives Deals

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Business owners often focus on growing revenue, increasing profitability, and negotiating the highest purchase price. However, many overlook one critical value driver: the quality of their financial and operational data. Buyers rely on accurate, complete, and timely information to evaluate risk and determine value. Consequently, poor data quality may delay a transaction, reduce valuation, or even prevent a successful closing.

Prospective buyers expect sellers to support reported earnings and every adjustment to earnings with reliable documentation. They also expect financial information to reconcile with tax returns, accounting records, and supporting schedules. Without credible data, buyers may question management’s credibility and the company’s overall performance.

Poor data quality often stems from outdated accounting systems and inefficient internal processes. Common issues include incorrect revenue recognition, untimely account reconciliations, outdated financial records, and legacy software. In addition, companies frequently lack effective internal controls over assets and financial reporting. Important contracts may be missing, significant transactions may lack documentation, and management may struggle to extract meaningful information from company systems.

As a result, buyers often expand their due diligence procedures to verify financial information independently. That additional scrutiny increases transaction costs, extends the due diligence timeline, and creates unnecessary uncertainty. Moreover, unresolved data issues frequently become negotiating points that reduce purchase price or shift risk to the seller through indemnification provisions or earn-outs.

Many entrepreneurs view investments in accounting systems, information technology, and financial reporting as administrative expenses rather than value drivers. However, those investments often generate significant returns during the sale process. Reliable financial information increases buyer confidence, supports higher valuations, and accelerates due diligence. Furthermore, strong reporting systems demonstrate disciplined management and effective business operations.

Business owners should evaluate data quality long before entering the market. Early preparation allows time to correct deficiencies, improve reporting processes, and organize supporting documentation. An experienced M&A advisory team can identify potential weaknesses, coordinate with accountants and other advisors, and help prepare the business for buyer scrutiny. Ultimately, high-quality data reduces transaction risk, strengthens negotiating leverage, and increases the likelihood of achieving a successful closing at maximum value.

Delta Services, LLC has been acquired by The State Group, Inc.

Delta Services, LLC has been acquired by The State Group, Inc.

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ABOUT THE TRANSACTION:

Delta Services, LLC (the “Company” or “Delta”) has been acquired by The State Group Inc.

DELTA SERVICES, LLC:

The Company launched in 2004 and operates from Louisville, Kentucky. Delta Services functions as a privately owned, bonded, and fully insured electrical contractor. The team delivers electrical construction, communication systems, fire and security systems, safety services, utility distribution, and PLC controls. Delta operates across Kentucky, Southern Indiana and surrounding states. The Company employs over 230 union electricians and 35 additional staff members.

THE STATE GROUP, INC.:

The State Group launched in 1961 and operates from Toronto, Canada. The company provides comprehensive electrical and mechanical trade services to Fortune 100 clients. It serves the power generation, automotive, oil and gas, communications, metals and transportation industries. The State Group is backed by New York-based private equity firm, Blue Wolf Capital Partners LLC, and Vancouver-based private equity firm, Yellow Point Equity Partners. The company operates 18 offices throughout the United States and Canada. Additionally, it employs over 800 professionals and skilled trades people across eleven crafts. These teams complete nearly 2,000 projects each year. They repair, maintain and construct critical infrastructure. The team prioritizes safety and delivers consistent, high-quality execution.

“Our successful sale to State Group is a testament to our team’s collective effort to be the best in providing high quality, value added electrical solutions for our customers and to our commitment to the local communities we serve,” said Kevin Waldron, President of Delta Services. “We’re excited to join State Group as we begin the next chapter of Delta Services’ growth and success.”

“The addition of Delta Services provides an exciting opportunity to partner with a company aligned with our own values in prioritizing quality of service, not price,” said Thomas Santoni, President and CEO of The State Group. “Delta Services has a strong brand built on a foundation of nearly 40 years of high quality service. We are proud to welcome Kevin and the entire Delta team into the State Group family as we grow our existing business in Louisville and expand our footprint into greater Kentucky and Southern Indiana.

Allston Advisory Group served as the exclusive financial advisor to Delta Services, LLC, and conducted a confidential, competitive sale process that included both strategic and financial buyers.

ABOUT ALLSTON ADVISORY GROUP:

Allston Advisory Group is an experienced M&A advisory firm providing mergers & acquisitions, business valuations, and exit strategies, to lower middle market companies. The firm has an established track record of serving corporate clients across a broad spectrum of industries throughout the United States. Allston Advisory Group has the experience, professional fortitude, and quality of work that enable the firm to consistently deliver high-level results to its clients.

For additional information on this transaction, please contact one of our advisors.

NEWS SOURCES: 

Business Wire

EC&M

Crunchbase

Bloomberg

Comstock Brothers Electric Company, LLC has been acquired by The State Group, Inc.

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ABOUT THE TRANSACTION:

Comstock Brothers Electric Company, LLC (the “Company” or “Comstock”) has been acquired by The State Group Inc.

COMSTOCK BROTHERS ELECTRIC COMPANY, LLC:

The Company launched in 1999 and operates from Louisville, Kentucky. Comstock functions as a privately owned, bonded, and fully licensed electrical contractor. The team delivers power distribution, electrical construction, process controls, conveyors, and package handling solutions. Additionally, Comstock serves automotive clients and provides design-build and electrical testing services. Comstock Brothers Electric Company creates value through responsive service, strong diagnostic capabilities, and reliable execution. The team meets critical deadlines and consistently “Exceeds Energy Expectations.”

THE STATE GROUP, INC.:

The State Group launched in 1961 and operates from Toronto, Canada. The company provides comprehensive electrical and mechanical trade services to Fortune 100 clients. It serves the power generation, automotive, oil and gas, communications, metals and transportation industries. The State Group is backed by New York-based private equity firm, Blue Wolf Capital Partners LLC, and Vancouver-based private equity firm, Yellow Point Equity Partners. The company operates 18 offices throughout the United States and Canada. Additionally, it employs over 800 professionals and skilled trades people across eleven crafts. These teams complete nearly 2,000 projects each year. They repair, maintain and construct critical infrastructure. The team prioritizes safety and delivers consistent, high-quality execution.

Allston Advisory Group served as the exclusive financial advisor to the Comstock Brothers Electric Company, LLC, and conducted a confidential, competitive sale process that included both strategic and private equity buyers.

ABOUT ALLSTON ADVISORY GROUP:

Allston Advisory Group is an experienced M&A advisory firm providing mergers & acquisitions, business valuations, and exit strategies, to lower middle market companies. The firm has an established track record of serving corporate clients across a broad spectrum of industries throughout the United States. Allston Advisory Group has the experience, professional fortitude, and quality of work that enable the firm to consistently deliver high-level results to its clients.

For additional information on this deal, please contact one of our advisors.

Allston Advisory Group is an experienced boutique M&A advisory firm providing a variety of services to lower middle market companies. See our footer for contact information.

(502) 742-2933
[email protected]
P.O. Box 21266, Louisville, KY 40221

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