Market Update, Effect of COVID19 on Business Value and Sales

Bill

Bill Grunau

COVID 19 has impacted our daily lives and how businesses are run.  It has changed the way we do business on a daily basis on a local, national and global scale. What does that mean for business value, how are the sales of businesses being affected, and how does it affect buyers and sellers?

 There are many businesses in the retail industry such as restaurants, retail stores and  personal services that have had to shut down or dramatically scale back operations resulting in limited to no revenue during the Stay at Home orders.  PPP loans, SBA EIDL (Economic Injury Disaster) loans and/or personal savings have kept these businesses going. 

Other businesses that are considered essential and allowed to continue operations.  These ranged from industrial to manufacturing and distribution businesses, construction services, grocery stores and medical, healthcare providers.  The owners of essential businesses saw their revenues either stay the same or have a modest decrease during this time allowing them to stay on the market and sell.  Some businesses such as construction and military manufacturing have seen an increase in business during COVID-19.  Another business segment that has been unaffected by COVID-19 has been ecommerce which has continued to have solid performance during the pandemic.  

Business in the essential services categories or those that have been unaffected by COVID-19 have seen strong demand from prospective buyers, SBA lenders have continued approving acquisition financing, and we are having a very strong year for business sales at Pacific Business Sales.  Business Values for these businesses have not been affected by and the valuation multiples of DE (Discretionary Earnings) and EBITDA remain the same as they historically have been.  

Businesses that have had an economic impact from COVID-19 have generally been pulled from the market with the owners choosing to wait until the business recovers.  The good news here is that we have been on numerous conference calls with SBA Lenders and Business Valuation Analysts (appraisers) discussing how these businesses will be valued going forward and there is a plan and methodology in place.  

The methodology to value a business that has been affected by COVID-19 will be to normalize the COVID-19 period using historical financial data and use projections for the rest of the year and following year.  This of course would be used for businesses that are emerging from the shut down and showing signs of recovery.  

From a “buy side” perspective the market is still very strong with buyers focusing heavily on businesses either unaffected by COVID-19 or minimally affected.  There are buyers for distressed sales and there will be buyers businesses affected by COVID-19 as they recover.  We are seeing a wave of corporate expatriates that have either been laid off, had salaires reduced or are facing the prospects of this.  These buyers are motivated to buy a business to secure their future and leave the corporate rat race.  

The market is still strong for essential businesses and moving forward the businesses that saw a drop in their revenue during this time with a return to normal sales volumes will be able to sell their business with little to no effect on the value of their businesses.  

Businesses are still selling and sellers are still able to receive maximum value for their businesses despite COVID-19.

Additional Information about Selling a Small Business

How Do I Sell My Business After COVID-19? 

When to Sell, When NOT to Sell, & When to Sell Anyway

How to Develop an Exit Strategy for Your Business

How to Value a Small-Midsize Business using Earnings Multiples

 

Bill Grunau

About the Author

Bill Grunau