The U.S. Economy, the Coronavirus, and the Impact on Small Business M&A
The U.S. economy is near crisis. Last week’s stock sell-off slashed the Dow Jones Industrial Average and reported the single worst week on Wall Street since the financial crisis. The stock market is shaking amid growing concerns over the coronavirus and its potential impact on the global economy.
How does recent economic uncertainty impact small business M&A?
The truth is, the impact of the coronavirus on M&A isn’t particularly clear. Coronavirus fears are clearly weighing on the broader market, but it is too soon to tell whether the disease will affect M&A activity throughout 2020. That does not mean there is no cause to worry. If the coronavirus spreads and becomes a pandemic, it has potential to tip the U.S. into recession. Amid uncertainty, buyers tend to react quickly to market changes, which could lower offer prices. On the other hand, sellers will likely still want their original prices. This disconnect between parties involved in M&A deals could reduce transaction volume. However, despite the hit the markets took last week, the U.S. economy remains in decent shape for now. If the coronavirus is contained, we can expect M&A activity to weather current volatility.
How should you prepare your business for sale during uncertainty?
Remain calm, continue to operate as normal, and conduct general housekeeping items.
We recommend that sellers gather financial documents, tidy up the books, prepare a growth plan, understand future capital expenditure requirements, complete succession planning discussions, etc. These items will not only make the forecasting and valuation process simpler but gathering this data will better prepare your management team for discussions with business intermediaries and prospective buyers. The best advice to any prospective seller is to continue operating the business in the way that made them a strong candidate for acquisition in the first place. Prospective buyers will quickly notice a well-prepared seller over an unorganized one.
Where do I start?
The best place to start the process of selling your business is to receive advice from a qualified business broker or business intermediary who understands your industry and the ever-changing economy. Reach out to us, your local experts, and discuss how your business can withstand the sale process through uncertain global and economic times.
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