A big question on all of our clients lips right now is: has the coronavirus / COVID 19 situation effected M&A in any way.
The answer is: YES and NO.
Our clients are creative businesses, mostly digital, content and live agencies and all of them have been effected by the global pandemic, of course. However some of them have been effected in more positive ways than others.
The global events industry for instance has been put on pause and most large scale events, if they’re even beginning to offer dates for a reorganised event, are looking at September time. This has meant some businesses losing their money, either already invested in deposits or fees earned going away.
However, our digital clients and some events clients who have already developed ways to adapt to digital during the great pause have been onboarding new clients and hiring new staff.
The same can be said with the M&A industry at large, we’re seeing three main groups form, the first group is the abandon everything brigade. These are mostly lead by big investment companies who want to pause while they take care of the companies they’ve invested in and very small agencies who can’t afford to take any risk. They make up for about a third of all M&A and so the reported downturn of transactions stems from this group.
The second group is the business as usual lot, not necessarily risk averse, so much as a downturn was always on the cards anyway and now we’re seeing it and they see undervalued companies which are ripe for acquisition. This group are always active in a downturn and will drive consolidation across all industries as they prefer to shop around when they can get the best value.
Part of their optimism will be that there’s an opportunity to find undervalued businesses and the other part is that they have loads of time on their hands and having a bigger pipeline to explore gets them from under their kids feet. When we’re all allowed out of the house, these guys will be ahead of the game with due diligence done and plenty of deals ready to close.
The third group, is made up of those who have been sitting on the fence whether they would like to buy or sell and have now had their hand forced. Either they can see the end of their runway is closer than they wanted and they are now actively looking for acquirers OR they are now a buyer, where they see fresh opportunities with talent and client lists coming onto the market and rather than wait any longer they are going to jump in with both feet and explore some dealmaking.
Personally I think anyone burying their heads in the sand with an approaching global recession is not going to fare well anyway. Yes, you can sit on your cash reserves and furlough staff, those are good things to do, but if you sit and wait there will be other first movers gaining the opportunities in the marketplace and whatever vertical you are in they will be adapting and stealing business.
I see a huge opportunity for the 2nd and 3rd groups, M&A takes ages to sort out anyway, even if everyone in the room at the first meeting wants to do the deal, you’re looking at a couple of months to get the contract and due diligence done on a small deal, a larger one, much, much longer. So why put plans on hold and set your calendar back a couple of months, when you can use time wisely now.
There is also the fact that many businesses may get into trouble during the next few months and while some messages to analysts I’ve seen have referred to bottom feeders looking for deals, I believe that with the best of intentions we are making our services available during a difficult time to help real people keep their jobs and real founders find an opportunity during a time when they may be faced with turning the lights off on a business that they have run for many years.
So, the bottom line here, is that, yes, there’s some changes in the market. There is definitely extended timelines being added to deal closures. It looks like most dealmakers will wait the two months until June 1st before they close any deals they had on the table. However, no, there isn’t a massive downturn in M&A activity right now. I am seeing lots of businesses come to the market on both sides of the table and while some business owners definitely won’t have the stomach for selling or acquiring, the most adaptable entrepreneurs will be looking to step up their game and increase their pipeline over the next 8 weeks into summer.
If you are thinking about acquiring or selling a creative agency then get in touch. Capital A works with creative agencies helping larger agencies to use acquisitions for growth and founders to exit their businesses. We only work with agencies, so our understanding of the industry and network when finding and closing deals is incomparable.