Middle Market M&A Activity in 2020: What’s Next

Trying to keep your finger on the pulse of the middle market is challenging right now. The pulse is not steady, to say the least. That said, there are observations and cautious predictions to be made. Here are some of the ways you should be thinking about mergers and acquisitions in the near term.

Think in months, not weeks

Most business leaders are agreeing that while we’d like to think of everything “going back to normal” in a few weeks, it is much more likely that the M&A market won’t show signs of recovery for at least six months. It is important to remember that the U.S. isn’t going through this as a whole. COVID-19 will ebb and flow through the country as peaks occur in different geographical areas. And as we’ve all read, we want to hold off those peaks for a long as possible… which means “normal” business will be held off as well.

Experts interviewed by the New York Times suggest that “reopening” will happen on a state-by-state basis, as leaders confirm that their healthcare system can handle the projected volume of patients, has enough tests, and can track outbreaks moving forward. They stress the dangers of reopening too early or providing false hope that all will be safe the minute restrictions are lifted.

We do agree with others that the second half of the year may provide opportunities. Owners will still need to sell and companies still need capital, even if deals wobble for a bit first.

There are big differences by industry and business type

While we’ve all been affected by COVID-19 in a myriad of ways, it has become apparent that certain types of businesses suffer more under current restrictions. For example, labor-intensive organizations have a different set of challenges right now than knowledge workers who can stay safe in home offices. Organizations that have direct contact with the public have to re-think how they do that.

It is also important to remember that just because an industry or market seems to be doing ok, investors need to keep an eye on customer contracts – will customers be able to continue to pay? Even in some not-so-obvious industries, the answer is “maybe not.”

Just about every decision is affected

Finding healthy business opportunities will be tricky for now. When things are this uncertain, underwriting and due diligence processes are difficult. Furthermore, many business owners and investors agree that it is impossible to close a deal without an in-person meeting. Some things cannot be judged over Zoom.

All that said, some private equity firms are choosing to set up side funds to take risks on distressed opportunities. Distressed opportunities are out there, and some will be big wins in the future.

Even in this environment, owners have an opportunity to set their organizations up for success in the future. We can help. Contact us for a confidential discussion of how to think about and take advantage of the opportunities available in your specific situation.

Get the Latest

Subscribe to our newsletter to learn more about current mergers & acquisitions strategies