When you are reading this article, on or about March 9th, it will be approximately 51 weeks since most of the country shut down in an effort to control the spread of COVID-19. At that time, the majority of the population and financial markets were gripped in fear, due to the unknown impacts of the virus. At the time of the shutdown, my firm had several transactions in process. Not surprisingly, all of them imploded as buyers did not want to buy a business that was shut down and lenders did not want to loan money to purchase a business that was shut down. Most Sellers were trying to figure out how to keep their doors open and/or pay their employees.
Now some states such as Florida, Texas, Mississippi and South Dakota, have little or few restrictions and in Colorado the restrictions are diminishing, as fatalities and case numbers continue to fall, due to prevention, herd immunity, and vaccinations increase. Unemployment is falling, earnings are rising, and the stock market, albeit with volatility, reached record highs. Clearly the recovery is too late for over 500,000 of our fellow Americans that have perished, and the numerous businesses that have permanently closed their doors, but the survivors are seeing the light at the end of the tunnel.
For the business transfer market, the change has been remarkable. Instead of deals crashing, we are seeing multiple offers on businesses as the demand, for businesses that have survived the turmoil and likely will prosper during the recovery increases. Although not to the level of the residential housing market, we are seeing buyers trying to position themselves with pre-approval letters from their lenders and Private Equity Groups indicating that they will do a cash close and refinance post-closing to provide a positioning advantage, relative to other buyers.
The foregoing notwithstanding, lenders are still requiring a deep drill down into financial due diligence for most transactions. There is no substitute for timely, accurate, well-prepared financial data. If you are a business owner that may be considering an exit within the next three years, you should at least visit with your advisors about exploring the market at this time of high demand, low interest rates, and abundant capital.
The majority of our business comes from referrals, and we look forward to working with you.
Ronald V. Chernak
Inspiring business relationships since 1982!