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Seller's market for companies: back from the brink?

September 11, 2020

The coronavirus has had an impact on the sale of businesses. When the lockdown started in our country, a large number of transactions were put on hold. We start with a brief look back and then we look ahead.

Lockdown influence

The transactions that were in the completion (contractual) phase in mid-March and had little or no impact from Corona and/or where the transaction had a high strategic value for the buyer all continued as usual. The sales processes for our customers in the agritech, food, healthcare and technology sectors continued and transactions were completed.

Some transactions that were in the process of being negotiated were delayed. For example, experts from foreign buyers were unable to come to the Netherlands to examine the books. Or there was uncertainty about the impact of the corona crisis on the business of the company to be acquired.

Sometimes buyers asked for a corona discount, because of the uncertainty in the market - even for companies without the expected impact of the corona crisis. In a few cases, the transaction did not go through.

After the lockdown had been announced, many investment companies dropped out. In most cases the portfolio companies were asked to withdraw all their current account positions from the bank, in order to have sufficient liquid assets at their disposal.

The corona crisis stimulated us to find out-of-the-box solutions. One of the solutions was to have part of the transaction price paid later by means of an earn-out. An earn-out is in fact a deferred payment at the time of transfer. The final selling price of the company is therefore dependent on future results. Another solution was to do site visits for the audit via live streams.

Seller's market for companies: back from the brink? 1

Recovery of the market

After the summer holidays the M&A market has picked up speed and deal flow is back to pre-coronation levels. Strategic buyers are still very active in the market and are not only looking for bargains, but also for strategic acquisitions that fit in with long-term growth. Some transactions that were put on hold because of the lockdown have now been restarted. They will still be completed with the strategic buyer that was discussed earlier.

Investment companies are also coming forward again, now that the damage to most of their portfolio companies appears to be less than expected and because the amounts entrusted still have to be invested. The M&A world seems to function remarkably well with digital meetings, digital signatures of transactions and in some cases even digital negotiations.

What will change when selling businesses?

For the time being, it is our expectation that sales processes will take longer than before. The reasons for this are as follows:

  • more explanation is needed on the impact of corona on the business model;
  • we provide more insight into the longer-term effects of the corona crisis;
  • there are longer legal discussions due to the uncertainty;
    physical meetings with (foreign) buyers cannot be organised as easily.

 

Foreign strategic buyers may think longer about how synergies can be realized within the acquired company without many physical meetings. As a result, only those foreign buyers will be interested for whom the company to be purchased is a perfect match and easy to integrate. It is difficult to say how this will develop in the coming years.

In these turbulent times, it is important for advisors to have a clear roadmap ready for the sale of a company. In addition, knowledge of the sectors and the network have become even more relevant. Sector knowledge and relationships built up in the past contribute positively to digital meetings.

An active international network of corporate finance companies is important to draw suitable strategic buyers into the process. This eliminates the need for travel to high-risk countries. Finally, we expect buyers to value the flexibility of an advisor. They are not stuck with the coercive corona protocols of the larger firms. They will be more agile in the sales process without losing sight of the guidelines.

The seller's market is back from the brink. It is important to think carefully about which advisor you choose in this seller's market.

Source : https://www.brookz.nl/kennisbank/bedrijf-verkopen/verkopersmarkt-voor-bedrijven-terug-van-weggeweest

More information and contact details

Harold Brummelhuis is an advisor in corporate finance at JBR. He draws on 15 years of M&A experience and 60 transactions at home and abroad. His strength is to oversee the playing field quickly.

Contact him without obligation.

Harold Brummelhuis JBR

Harold Brummelhuis

+31 (0) 6 159 048 24

h.brummelhuis@jbr.nl