Rising and Falling Demands in the M&A Market

MD Blog: Wayne Bell

By Wayne Bell October 22nd, 2020

As we approach the tail end of a year best described as unprecedented, there’s been no shortage in the newsfeed of businesses struggling to cope in the wake of the pandemic. And while many moving pieces have yet to settle, the current environment is driving significant opportunities for potential sectors in demand for M&A activity.

Earlier in the year, it seemed the world stood still for a few months, but several sectors were resilient and continued to see growth. The first two that come to mind are construction and industrial-type businesses. With increasing stimulus and prominence around the globe, these sectors are essential to community growth and many were predominantly unphased by the pandemic. In March, institutions and educators were left scrambling to immediately shift to distanced learning. All online education support platforms are still in high demand, and garnering attention from strategic buyers. Outdoor recreation of any kind is also a hot spot. With families flocking to get outdoors in search of fun in new and diverse ways, we’re seeing people transition towards outdoor recreation instead of travel and entertainment. Finally, as we push relentlessly towards gaining more in-depth insights and understanding of the virus; any testing, laboratory investigation, and medical device corporations have catapulted into the spotlight. And, should any businesses in these sectors come packaged with recurring revenue platforms such as some software or services hold, that will only add to the attractiveness and pique potential buyers interest ahead of their competitors.

A more empathic perspective is that for founders and entrepreneurs within any industry, the pandemic has caused them to pause and think about their succession and what that means for them. The reality of such an impactful event has caused deeper reflection and brought tough questions to the forefront. How long do I want to keep the business? How sustainable is the business? How recession or impact-proof is the business? During the last few months, I’ve spoken with business owners that have asked each of these questions. Some of these owners have reflected on these questions and decided they value more family time and wish to exit the business on their terms. However, with many dynamics at play in the marketplace right now, this certainly isn’t a “one plan fits all” scenario and each exit needs to be carefully constructed to ensure maximum financial value is achieved for the decades of hard work that has been put into some of these businesses.

With some of these businesses thriving amidst the pandemic, many others are struggling – but that doesn’t mean it’s all doom and gloom. Hospitality and hotel industries, for example, have struggled, but it doesn’t mean that the demand for service necessarily has. Perhaps the overall values and the multiples are being impacted, but there is still a substantial opportunity for positioning these types of businesses attractively for buyers as the future will be re-imagined with these assets and demand will return in the future.

The adage states that “necessity is the mother of invention,” and we’ve seen more new businesses emerge, and existing businesses pivot than ever before. Brilliant innovations and ideas that are leveraging existing technology and thereby transitioning them into new markets. We’ve heard the stories about factories that shifted gears (literally) to produce personal protection equipment and distilleries that began producing hand sanitizer. The bottom line is that while some sectors are challenged, there’s an equal amount that are thriving by way of reinvention.

For strategic buyers, thinking through a roll-up strategy or a merger that fits their portfolio, these might make the best sense in the current market. A strategic buyer’s mindset supports how to grow more quickly because there’s an opportunity to assume, merge, or acquire some of these businesses at rates that allow for maximum time and market share impact. Another critical driver for strategic buyers is the availability of capital, in which each dollar is going a bit further. There will be some sense of normalcy come about in the next 12-18 months, but until then, businesses that are struggling should look ahead to see how they can best prepare or identify how they can pivot to regain relevancy. As we approach the verge of that normalcy, how can businesses be scaled to meet growing demands? And, it’s all about that scale as the pendulum will swing back, but how far, we don’t know.

In summary, there are plenty of opportunities still for entrepreneurial business owners that are looking to exit their businesses. Partnering with a trusted advisor to ensure business owners achieve the maximum financial value has never been more important than it is today and in the current market.

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