What We’re Discussing with Clients
- Active Debt Markets: Lenders have shown an increased appetite for new opportunities in 2H-20, but primarily for borrowers with limited exposure to COVID-related disruptions or a proven rebound from COVID-19. Sectors with sustained or growing volumes over the past several months are often trading at a premium as buyers continue to chase a limited universe of high-performing assets.
- EBITDA Adjustment Support: COVID-19 EBITDA Adjustments have been highly scrutinized by potential investors, particularly with top line adjustments. It is critical that sellers provide detailed support to demonstrate revenue streams from impacted customers, products, and/or end channels have returned, or are on a sustainable path to return to, pre-pandemic levels.
- Capitalize on M&A: If your organization has successfully navigated the past several months with manageable debt levels and/or effective cash management, now is the perfect opportunity to consolidate, vertically integrate, or acquire new products, customers, or capabilities. Both proprietary transactions and formal processes will require flexibility and creative diligence solutions (from the buyer and seller) as interactions with the target and its management will most likely be fulfilled remotely.
Q3 2020 M&A Market Summary
- US Middle Market M&A deal volume totaled 2,274 in Q3-20, representing a ~34% increase compared to Q2-20, but well below the 2,768 deals in Q3-19.
- Notwithstanding the weak M&A performance vs. Q3-19, volumes have significantly improved since early in the pandemic. Many sectors are starting to return to pre-crisis levels as companies are leveraging healthier balance sheets to selectively pursue external opportunities to drive inorganic growth.
- US Middle Market M&A volume for the Food & Beverage sector showed signs of stabilization in Q3-20 as total deals increased ~4% vs. Q2-20.
- Despite the modest increase in Q3-20, YTD 2020 deal volume of 326 transactions decreased ~23% vs. YTD 2019. Interestingly, private equity deals represented almost 50% of total volume for the quarter as financial investors have benefitted from a friendlier borrowing environment.
- We remain cautiously optimistic for the remainder of 2020 and expect 4Q-20 to be a very active quarter for M&A due to pent up demand and the quality of deals coming to market, although the uncertainty from the pandemic will be closely watched by investors.
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