Selling or exiting a business is typically the culmination of several years of planning – efforts that, in many cases, have been upended by the COVID-19 pandemic.
While the changing landscape has some looking to accelerate their exit, most respondents to the 2021 Welch LLP Ottawa Business Growth Survey say it’s delayed their plans by at least six years or more.
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However, the pandemic has not impacted all industries equally. This year has seen an active M&A market, fueled by a shortage of companies for sale, and lots of capital, both debt and equity, available to complete deals, says Jim McConnery, managing partner at Welch LLP.
“As long as we don’t get hit with a “Black Swan” event, the pace of activity will likely continue,” he says. “Headwinds are on tap, in the form of: global inflation, supply chain challenges and labor shortages in many industries. Business owners should be planning exits proactively or should land on business plans to address the forthcoming economic challenges.”
The economic uncertainty is also a challenge for buyers and includes a risk of overpaying for companies acquired. This risk can be managed by having part of a purchase price connected to future performance of a business. This includes the use of earnouts where part of the proceeds are only payable if specific revenue or profitability targets are met on a post-sale basis. Earnouts are not new, however, they make more sense in times of economic uncertainty.
“Companies that have performed well or better during COVID-19, with an increase in revenue or profitability, and who are looking to sell, have found themselves in a fortunate position,” says McConnery. “A combination of a scarcity of deals and excess capital have driven up valuations.”
Read the full 2021 Welch LLP Ottawa Business Growth Survey report below:
