Buying or Selling a Business During the Coronavirus Pandemic – As the year depict to a close, it is becoming clear that the impact of the coronavirus pandemic is felt very differently depending on what industry you are in. Where some companies are struggling simply to keep their heads above water, others (like delivery services) are expanding at an almost unprecedented rate.
This presents a challenge for business owners who were considering an acquisition, sale, or merger before the pandemic hit. Does it still make sense to sell during a time of such uncertainty? What additional risks are involved in acquiring a business during the pandemic? How can you be confident this is a good time to close a major business deal?
The truth is that there is no one-size-fits all answer. But if you do want to purchase or sell a business in the coming year, here are some tips that can assist you make a smart deal.
1. Don’t Rush into Things
As the pandemic unfolds, many business owners who are watching their sales drop and their equity vanish may be tempted to try and salvage as much as possible. This is an understandable impulse, but selling in a panic is never a good idea.
Similarly, if you are interested in acquiring a business or negotiating a merger, it’s important that you take the time to analyze your targets carefully. What is their debt situation? Does their current financial position reflect a COVID shock or bump, or is it reflective of a longer trajectory?
2. Work with a Business Broker
Whether you’re buying or selling, if you operate in the small business world you need to make sure you have the support and expertise of an M&A advisory firm in your corner.
Business brokers who understand your industry are perfectly placed to help you make informed decisions about when and whether to buy or sell, and can help you find buyers who will offer a fair price.
Typically, brokers will also take care of things like:
- Providing advice on enhancing business value
- Analyzing acquisition synergies
- Valuation
- Due diligence
- Negotiation and closing
Under normal circumstances, working with business brokers is advised, but during the turmoil of a pandemic, it is absolutely essential.
3.Mind the Valuation Gap
One factor that has bedeviled companies trying to buy and sell during the pandemic is the “valuation gap.” Before you can make an informed verdict about an acquisition or divestiture, you need to know the value of your assets, brand, and company.
But the speed at which the pandemic has upended the economy can make it hard to know what a fair market value for anything is, and simply looking at the past fiscal year may not provide you with reliable information about a company’s true value. In time, this gap will stabilize as a new consensus is reached, but for the time being it is more vital than ever to get a professional valuation done.
Though COVID-19 has had a markedly different impact on an industry like retail as compared to essential services like roofing or plumbing, one experience all sectors have had in common is uncertainty. When you don’t know what the coming year will bring, it’s hard to engage in long-term planning.
But this isn’t necessarily a reason to avoid mergers, acquisitions, and divestitures during this time. Careful planning and the help of experienced M&A advisors can help you identify good deals that offer long-term value.
