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Covid-19 Impact on Lower Middle Market Acquisitions

May 17, 2020 1:59 PM | Judy Pfeiffer (Administrator)

Will the merger and acquisition markets be helped or hindered by the current environment? The answer is yes - and it is dependent on two major variables: the economics of the business sector and the mindset of business owners. Deals in sectors such as hospitality and brick and mortar retail will be renegotiated, postponed or crater altogether. Sectors such as software and medical products and services will generally continue on the course already set.

Active sellers in affected sectors will have a choice to delay or carry on. Those who keep moving their deal options forward will do so because the impact on their business is modest or absent or because their balance sheet is not strong enough to weather a recession. Those who delay the sale of their business may do so because they have a strong balance sheet or on the assumption that the pricing will be more robust in a year other than 2020.

Market dynamics have been disrupted and business owners must react to the specific impact the pandemic is having on their sector. Some owners will not have the necessary motivation to battle through what may be a prolonged recovery. Distressed investors will re-emerge in what has, up to this point, been a sellers market for a decade. Private equity firms will rethink their portfolio and adjust their acquisition targeting. All investors looking at new sectors should consider the value of broad outreach vehicles such as direct mail for the early discovery of businesses which are now approachable for the first time.

Contributing author: Ralph Dieckmann, Integre Partners

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