The fact that the COVID-19 Pandemic (“COVID-19”) changed the business landscape is hardly breaking news. But, how has COVID-19 changed the landscape for business buyers and sellers? Consider the following…

The impact of COVID-19 on the market for business purchases and sales…

Business acquisitions have become riskier because COVID-19 has added to the difficulty of predicting the demand for goods and services, the availability of labor, the stability of supply chains, and the possibility of further government-mandated shutdowns.

The increased risks presented by COVID-19 have, by most accounts, caused the market for business acquisitions to shift from a “seller’s market” to a “buyer’s market.”

Although business acquisitions may have become riskier, deals continue to be done because private equity investors still have capital to deploy and, in many cases, they perceive the buyer’s market as presenting unprecedented opportunities.

The impact of COVID-19 on the mechanics of business purchases and sales…

Valuing businesses has become more difficult because historical earnings are less reliable indicators of future earnings. Not only will demand for goods and services be less certain for the foreseeable future, but businesses face new costs associated with implementing increased health and safety infrastructure and procedures.

There is less opportunity for face-to-face due diligence meetings with a seller’s key employees and management team.

Deals are taking longer because travel and other logistical disruptions are slowing the due diligence process as well as limiting the availability of key third-parties (e.g., lenders, regulators, etc.).

The increased inherent risk in acquisitions may cause lenders to reduce the portion of the purchase price they are willing to finance and may result in increased interest rates and fees.

Conclusion…

COVID-19 has changed the landscape of buying and selling businesses, but deals continue to be done. Business buyers and sellers will need to be more flexible and creative when navigating the uncharted waters of doing “COVID-19 world” deals. Please feel free to contact me for more information about buying and selling businesses in this new environment.

PLEASE NOTE: This blog is merely for the general interest of the reader. It is not legal advice or opinion and it does not create an attorney-client. Please call me at 973-921-0600 if you’d like to have a free initial telephone consultation or learn more about me or my practice. Thank you