Business Services

Key Features of the M&A Market Post Lockdown

By M&A Advisory
September 2020

Clearly, we are approaching another challenging time with the potential for another lockdown, and the winding down of furlough, which could result in a spate of redundancies and much lower economic activity. However, we are currently seeing a fairly buoyant M&A market in our marketing communications, Martech and media niche. Some particular attributes of the current market are as follows:

Business performance is not generally as bad as feared…

Agencies we have spoken to are generally around 20% to 50% down on revenue for the Covid period. Many have managed to reduce their cost base to retain profitability, though not always at the same level as prior to Covid. When you mix in strong results pre-Covid, or a stronger recovery post Covid, their overall financial results are looking broadly acceptable. It is interesting to note that the types of business that have suffered the least during Covid relates more to luck than skilled management. We have seen some excellently managed business suffer because they have a client concentration in some of the more vulnerable sectors such as travel, leisure and events. However, the stronger businesses have been able to innovate and win new business quickly. Some businesses, particularly those in Martech have continued to grow throughout the period. Somewhat surprisingly, ‘hospital cases’ in need of an urgent sale, are less common. Those badly affected have often chosen to re-build rather than sell.

M&A market is looking reasonably buoyant…

We work in an industry that needs to constantly evolve around the needs of its clients. A significant change like Covid provides additional challenges for clients which will need new tools to overcome them. This has increased the demand for data, CRM and CRO businesses, as buyers continue to look for such opportunities to enhance their businesses. In addition, private equity buyers are continuing to search out fast growing businesses. Deals have continued to be completed during the lockdown period and all at good pre-lockdown multiples.

New buyers emerging…

The lockdown period has had many business, particularly stronger ones, taking the opportunity to reflect on their future strategy. We have seen new buy and build groups emerging who are hungry for acquisitions. These range from well-financed listed groups through to smaller businesses who have reached the stage where acquiring a new skill set, technology or geography, in order to wrap themselves more closely around their clients, makes strong commercial sense. Poor availability of finance has hampered some businesses from implementing this strategy, but this is slowly improving.

Shortage of sellers…

Many potential sellers of largely unaffected businesses are holding back before coming to the market for fear they will be considered as desperate sellers and marked down accordingly. Serious trade and private equity buyers however know quality businesses when they see them and are continuing to pay good prices.

Buyers giving credit for post recovery performance…

During normal market conditions when a seller hits a rocky period, a buyer would expect to see the seller have a clean year end post recovery, plus the achievement of a significant part of their next forecast, before entering into a transaction. Clearly, post lockdown many businesses are in the same boat, so buyers are tending to give credit where sellers are starting to achieve pre-lockdown revenues on a monthly basis.

If you have been considering a sale and your business works in areas not too affected by the current crisis, then this might just be a good time to start the process.

David Blois

Managing Partner

M&A Advisory

Based in Central London, M&A Advisory are advisors to the global Marketing Communications and Martech sectors.

Originally published by BBP Media.

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