Should I Sell My Business During the Pandemic
As economies around the world have opened up, business activity has rebounded and societies have begun to adapt to the new way of behaviour/living, one of the questions we often get asked is “Is this the right time to sell my business or should I sell my business during the pandemic?” The answer to this question is “IT DEPENDS.” There are various factors to be considered when deciding to sell the business, all of which play a role in decision-making, some factors are more critical than others.
Before we delve into the answer, let’s consider what has happened. The Mergers & Acquisitions market has rebounded from its April/May 2020 low as evidenced by the graph regarding US companies.
M&A activity has begun to improve since May 2020. The 2nd half of the year got of to a great start with the announcement of a series of blockbuster deals. According to data from Refinitiv, the combined value of megadeals announced so far during the second half of 2020 reached $256 billion, this tally was exceeded only once during this 10+ year M&A boom, in 2015.
We are beginning to see a similar trend in Canada with activity picking up from June 2020, though operating slower and more cautiously than it was pre-pandemic. Everybody has been impacted by the virus shutdown and the M&A participants are aware of this and adjusting their thinking based on it. Business attractiveness and valuations for M&A depends on the industries being considered. See the chart below.
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The speed of recovery and the impact on businesses to-date is uneven. Let’s think about the last 3 major events that impacted businesses around the world:
The Technology Meltdown (2000 / 2001) – This largely impacted the technology, media and telecom sector. Recovery began in 2002 but was largely uneven through the decade.
The Financial Crisis (2008 / 2009) – This largely impacted the financial and real estate sector. Recovery began in March 2009 and we witnessed one of the greatest bull markets and M&A boom.
The Pandemic (2020 / ??) – This change has largely impacted the Hospitality, Leisure and Capital goods industries. This is still an ongoing event. So far the recovery is uneven.
The two strong tail winds aiding this recovery are low interest rates and ample liquidity. This is already being witnessed by the stock market rebound and M&A activity in the sectors least impacted by the Pandemic; and once a vaccine is developed, it is sure to jump start the remaining industries. Also, the likelihood of a complete global shut down due to a second wave appears to be low. Governments, health institutions, businesses and societies are better prepared today to handle any reoccurrence of the virus and any shut down will be more targeted.
Circling back to the answer to the question “Should I Sell my Business during the Pandemic”. IT DEPENDS on one’s situation and long-term goals. If your situation / goal warrants the sale of the business you should move forward. Timing the recovery or another catastrophic event is a fool’s game. As Mark Twain said, “History never repeats itself, but it often rhymes.” You should talk with your advisor regarding the best way to move forward. An experienced advisor will guide you through the ups and downs of the business cycle, manage and appropriately pace the timing of the sale and help you achieve your objective.
We at Distinct Capital Partners have been advising privately owned small and mid-sized businesses for decades and have experienced many business cycles and during that time have helped business owners successfully sell their business.
Sources:
Joe Froehlich, TKO Miller article.
Lina Saigol, Surge in Megadeals Points to M&A Recovery as Tech Sector Dominates.
Factset, M&A During Covid-19: Another “New Normal” or Back to Business?