Mergers & Acquisitions and the coronavirus

Heading into 2020, mergers and acquisitions in Kansas City were riding a 15-year high, with expectations for another banner year. The coronavirus pandemic has changed that.

Mike O'Malley, president of O'Keeffe & O'Malley Inc. in Overland Park, said sellers are hitting pause.

"I have two new clients who were ready to go to market, but we can't because they're just not going to get much attention right now," O'Malley said. "So we put it on hold until this situation improves. Why go out there and only be in front of about 5% of the buyers who would normally be looking at deals?"

John Hense, managing director of CC Capital Advisors in Kansas City, said the biggest question he's hearing right now is: "What's your April going to look like?" He said he's talked to companies with $100 million in annual revenue that are projecting zero sales in April.

"That is a massive shift," Hense said. "It's something we've never seen before. Even in 2008, we saw big hits to revenue, but not zero revenue. I've been doing this for 25 years, and this is obviously unprecedented for me. It's probably unprecedented going back to World War II. So this is a brave new world in M&A for most of us."

Although the two M&A consultants said some deals are getting done right now, it's generally because they were already far into the process before March 13. The companies also are typically in industries not losing business because of social distancing.

"Really the question is, can you close the deal?" Hense told the Kansas City Business Journal. "We're working on a few deals right now, and the due diligence we're doing, which would normally be done face to face, is being done with video conferencing. We've never done that before."

Often, Hense said, a buyer already has visited the facilities once. A buyer selected as the final bidder typically would want go back for another visit. Some are willing to pass on the final visit, but others are not. He said it's very buyer specific.

"People are finding a whole new way of doing business," he said. "The companies willing to do that are getting deals done. The companies not willing to do that are not going to get deals done for a while."

O'Malley said sellers are worried about the market building in price discounts. For businesses temporarily affected by disruptions, no one really knows how much that discount will be. For businesses that are growing in this environment and aren't willing to take any discount, many would rather wait to sell in more certain times.

"Everyone is waiting to see where valuations will land after this is all over," O'Malley said. "If it's just a few months of a glitch, I think we'll come out and it will be fine. But if it drags on for months and months longer, then I think valuations will go down, and some of the financing would dry up to the point where buyers wouldn't want to take on so much risk."

Article courtesy of Kansas City Business Journal.