Economic Performance 
·  The U.S. Economy (GDP) decreased an estimated 31.7% in the second quarter of 2020 due to “stay-at-home” orders and general uncertainty in response to the spread of the coronavirus. The pandemic has led to decreases in consumer spending, mainly in clothing goods and healthcare services, and exports, led by capital goods. Current estimates for third quarter GDP growth range from 20%-30%, reflecting expectations of increased economic activity and further government stimulus.

· The unemployment rate has decreased from 10.2% at the end of July to 8.4% in August. Apart from temporary government hiring for the 2020 census, job gains were largest in retail trade, professional and business services, and leisure and hospitality. The number of unemployed persons has decreased for four consecutive months to 13.8 million but remains 7.8 million above February levels.
 
· Consumer Sentiment increased to 74.1 in August, though it remains near its pandemic low of 71.8 in April. Increased coronavirus cases in July and continued high unemployment led to the survey’s depressed reading in August. Although half of consumers anticipate an improved economy by year end, 62% judge current economic conditions as unfavorable.

· Manufacturing PMI registered a reading of 53.1 in August, indicating an overall expansion of factory activity following the record low of 36.1 in April. The increase is a result of improved new order inflows, especially in the form of new export orders for larger firms, a reflection of increased foreign demand. At smaller firms, new orders and export sales continued to fall from pre-pandemic levels. 
 
· Services PMI reflected a positive sentiment with a reading of 55.0 in August, a significant increase from the all-time low of 26.7 in April. The expansion was supported by increasing new activity in technology and financial and business services. Further, accumulating backlogs drove pressure on capacity and called for workforce increases. On the other hand, consumer-facing sectors such as travel, tourism, and recreation continued to decline from pre-pandemic levels.
 
· Small Business Optimism Index rose 1.4 points from July to 100.2, though still depressed from its February reading of 104.5. The latest improvement was driven by increases in overall production accompanied by even higher increases in consumer consumption of goods. Retail sales were up as a whole, but many sectors such as restaurants, bars, and clothing stores remain 20% below February levels.
 
· According to the second quarter CFO survey conducted in mid-June, CFOs are more optimistic about the financial prospects of their firms and the U.S. economy than they were at the end of the first quarter. Most CFOs expect their firms to see lower revenues in 2020 and increased revenues in 2021 as consumer demand picks back up. CFOs expect decreased employment levels at their firms through 2021.
 
 
Sources: (1) U.S. BEA, (2) BLS, (3) The University of Michigan's Index of Consumer Sentiment, (4,5) IHS Markit, (6) NFIB, (7) Duke Fuqua CFO Survey 
M&A Data
The effect of the coronavirus pandemic was felt heavily in the second quarter as reported deal volume was less than half of that reported in the first quarter (31 vs 82). Valuations, on the other hand, were virtually unchanged from the first quarter at 7.4x. 
· Overall, leverage levels decreased in the second quarter as lenders offered lower debt multiples and as sponsors opted for more conservative capital structures in response to the uncertain economic environment. 

· For deals with enterprise values between $10mm - $25mm completed in the second quarter, both subordinated and senior debt levels decreased from those in 2019. The decrease in total leverage was not as significant as the pullback for larger enterprise value deals. Purchase price multiples in this valuation range declined slightly to 5.9x from 6.1x.

· For deals between $25mm - $50mm, total leverage fell as a percentage of the capital structure by 8.0%. Despite less available leverage, increased equity contributions supported purchase price multiples consistent with prior years.

· Purchase price multiples for larger deals of $50mm - $100mm increased to 8.3x from 7.5x in 2019, supported by drastically increased equity levels. Senior debt for this valuation range decreased to 33.7% from 41.0%, as a percentage of capital structure.

Source: GF Data

COST OF DEBT
·  The 3-month LIBOR rate fell to 0.3% in the second quarter following Fed rate cuts in March and monetary easing through July. The 3-month LIBOR has continued to fall as the Fed signaled further monetary easing, reading 0.25% in the beginning of September.

·  Senior Debt LIBOR spread increased to almost 5.8% as the base rate fell. In the first quarter, the Senior Debt LIBOR spread was 4.1%. The rising spread is likely a reflection of increased risk for lenders given the uncertain economic conditions.

·  Subordinated Debt pricing remained relatively consistent with the past three quarters at 10.9%, a slight decrease from last quarter’s 11.2%.


Source: GF Data
About Us
Whether you want to sell or buy a business, Chapman Associates provides a personalized service, based upon our sixty-two years of successful M&A closings and our relationships with more than 9,300 registered buyers. Chapman is one of the most respected middle-market M&A firms in the country. What makes Chapman different from the competition?
• We make a market for our clients.
• We do not charge any up-front fees.
• Our fees are based on successfully completed transactions.
• We devote senior-level attention to every M&A transaction.
• We do not delegate work to junior staff.
• We help clients set realistic goals and then work hard to exceed them.
• We conduct in-depth research and rigorous analysis.
• We prepare all necessary offering materials.
• We have seventeen offices nationwide to serve our clients.