We are living in strange and precarious times, between COVID, economic crises amidst a surging stock market, and a forthcoming changing of the guard politically.
Interestingly, Buyer interest and activity at Sunbelt remains as strong as ever. Candidates are making inquiries and evaluating available businesses at a healthy rate. However, when their evaluation process reaches the offer phase, the effect our uncertain economic climate becomes apparent.
Sellers of businesses in the enviable position of sustaining year-over-year revenues (or even growing YOY revenues) are receiving healthy offers at or near asking price. These transactions are taking place with little negotiation, and at healthy multiples roughly equivalent to pre-pandemic levels.
Sellers of businesses that have lost ground during the pandemic are also receiving offers from Buyers, although at transaction levels which can give many Sellers a moment of uncomfortable pause. Not surprisingly, Buyers who are actively evaluating underperforming businesses during the pandemic are well aware of the risk and uncertainty in the year ahead. These Buyers seek acquisition opportunities where the transaction value is adjusted downward to clearly address their risk.
If you’re considering selling a business in the coming months, and your business has been significantly impacted by the pandemic, ask yourself these questions before you proceed:
- – Can I quickly adapt the business to capture more revenue during the continuing COVID crisis? For example, a restaurant might invest in outdoor seating, heat lamps, or ramp up existing online ordering features.
- – Can I ride it out? Do I have the energy, perseverance, and resources to ride out the pandemic?
- – Am I willing to accept the possibility of reduced proceeds, in exchange for transferring the risk and uncertainty to someone else?
There are many factors which go into determining the direct effect of COVID on the likely transaction value of your business. Beyond the revenue implications mentioned above, there are other factors which may also contribute to the value of your business in this current economic climate; for example, the industry, geographic location, and overall size of your company. If you’re unsure whether now is the time to launch your exit strategy, Sunbelt can help in that determination.
Reach out to us for a preliminary and confidential consultation at no cost.
Jordan Zweigoron is a Senior Advisor with Sunbelt Business Brokers. He can be reached at (408) 436-1900, or at [email protected]. Or connect with Jordan on LinkedIn.