The Need for Expert Advice When Experiencing Widespread Economic Strains
March 18, 2020
A Message from SC&H Capital
The COVID-19 virus is having a broad-reaching impact and many organizations are finding themselves scrambling to find guidance to navigate these times. Through no fault of their own, many good companies will need economic or transaction assistance in the coming months.
As organizations are considering their options, the SC&H Capital team pulled together thoughts on what to expect to experience if your organization is considering succession alternatives. The following details what our team is experiencing around the length of transaction processes, financing, and valuations at this time.
Timing specific to transaction processes – in ongoing engagements, we have not yet experienced delays in getting the process moving, or in getting offer submissions. With that said, we recognize that travel has the potential to be significantly reduced in the short term, which is likely to add a few weeks to the typical process as we try to get people to conduct site visits and diligence.
Availability of financing – there is tremendous liquidity in the current market. Private equity continues to sit on record amounts of dry powder, and we are confident that many of these groups are viewing the present scenario as a buying opportunity. We continue to see a steady stream of emails from financial buyers asking for phone calls to discuss engagements and their investment criteria.
Business valuations – based on recent deal closings and bids on in-process mandates, recoveries in distressed deals remain at historic highs. We expect the current uncertainty to create some risk for buyers, which will lead to lower valuations, but we don’t expect that to be material as of the time of this writing. If we move into a recession, as this article, authored by Ken Mann, Managing Director, SC&H Capital points out, valuations will begin to slip. In that case, it is better to be an early seller than a later seller, and values are slow to recover post-recession, so “wait and see” is not a good policy in most cases.
The thought of looking to the future and considering the threshold of what your organization can withstand during a tumultuous time is daunting. Let this message serve as a reminder to consult with trusted advisors at this time to navigate the road ahead, and SC&H Capital is here to help organizations through these particular situations or needs to scenario plan.
How Can SC&H Capital Help?
SC&H Capital added the Special Situations team from Equity Partners at the beginning of 2020 to provide robust distressed M&A services. This team has completed over 600 distressed transactions around the United States, and together, our newly combined team of 24 professionals is one of the largest firms serving the middle market with expertise in healthy and distressed M&A. Our team is equipped to handle new client engagements, using technology and video conferencing, to handle any geographic or logistical distancing caused by this situation. Our bench is deep and strong; therefore, we will not miss a beat.
Here’s the good news – deals are getting done. We just closed two distressed M&A transactions: Cardinal Homes, a made-to-order, modular building component manufacturer, and Bell Mountain Village and Care Center, an assisted living and skilled nursing facility. We are experiencing strong offer activity in our current engagements, and to date, our Special Situations M&A transaction processes have not experienced disruption and values have held.
If you find yourself in a situation where you are in need of assistance or guidance, please contact us. Together, we can maximize recoveries, save jobs, and keep the economy moving through these tumultuous times.