Has this created a buying opportunity?
Good companies are not dropping their prices and, if they can’t get their price, they will wait because they don’t have to lower their prices. Companies in trouble will be very vulnerable trying to get a deal done.
Have travel restrictions impacted M&A deal-making?
Travel restrictions are an additional hurdle to deals proceeding beyond the management meeting stage. Nevertheless, the deal community seems to be adjusting to life from the home office. We expect there will be a day when we are all on planes again soon, but in the meantime, our interactions with others have felt a bit more human, despite the physical distance.
Considering the unknowns, how does the rest of the year look?
It makes sense to us that a slowdown in the number of deals that close may occur through the balance of the year. The good news for those that choose to proceed is that we don’t expect valuations to fall precipitously since the supply of dry powder remains quite high. The challenge for banks and private equity buyers will be to understand what a normalized EBITDA run rate is likely to be.
How has capital for deal-making been impacted?
Generally, it has not, as far as the amounts, but it’s not flowing much yet. It’s sitting there in the acquirers' bank accounts and they need to invest it.
What about capital flow from the banks?
Banks and private equity want to see what’s going to happen. They’re going to buy your company, but they’re not sure how the virus is going to affect you and what condition you will be in when they close the deal. So, they’re both saying the same thing. They both want to do deals. Private equity is more aggressive about finding deals and working through all the due diligence right now, but the banks also want to do deals. They all need to put their money to work. The dollar the banks invest is going to make 3 percent if they’re lucky. Private equity groups need to make 20 percent a year, so they are more aggressive about making investments.
