I believe that Covid-19 has changed the mergers and acquisitions market pretty significantly, and in particular within our sector. A number of sectors have been greatly affected by the Covid situation, there’s also some sectors that are thriving throughout, but most have been effected substantially by it.
What we’re seeing is that where there were some business owners that weren’t at the stage where they were looking to sell or exit their businesses pre-Covid, these people have had to look at their business, because of the crisis, and a number of them are looking in terms of purely survival. They’re seeing that an exit to a larger business is really the only choice that they have because of the circumstances that we find ourselves in with the Coronavirus.
I think that’s certainly changed the market, we’re seeing more activity. Where we’ve made contact directly to sellers or business owners that previously weren’t interested in selling, they’re now chasing us. We’re seeing a lot of activity where they’re coming back and saying ‘look, can we have a conversation’.
The other key thing, but also where the difficulties or challenges are, is that the EBITDA multiples have reduced because every business has been affected by Covid-19. So multiples have been affected, the multiples that were there pre-Covid are not there in the marketplace, they’ve gone down at least 25 – 30% as a minimum. It’s also affected our businesses that we own. If we were to sell we’d be in the exact same situation really.
What we’re seeing is that people have still got pre-Covid valuations in their mind-set. Valuations on multiples and numbers that were only up to even the end of March. But of course, most companies and most businesses have done bugger all, nothing, zero pretty much during the last three months. So when you fast forward these numbers into this financial year, every single business is going to have a reduction because they’ve effectively lost three to four months of the year. Then it’s a slow burner on the ramp up, so you can effectively almost rule out five to six months of this year. People are still overvaluing their companies based on last years’ numbers, but any credible buyer will want to know where you are today. We have to factor in Covid and the effects it’s had on each of these businesses.
Its affected multiples, they’ve gone down purely because of Covid, which means the value of the companies have gone down. So in actual fact, we’ve seen people cotton on to this and the penny’s dropped, where they see it’s more beneficial to sell the businesses now because you can take into account the figures up to the end of March which is reasonable, but the longer this goes on, any credible buyer is going to take into account the full effects, and that will have a negative effect on any valuation put on the business. How long it takes to come out of this is the unknown, so anyone looking to sell their business, it would make sense to do so sooner rather than later.