The Effect COVID-19 Is Having on M&A in the BSC Sector

It’s known that the BSC sector is recession-resistant, and because of that, it performs well from an M&A perspective during a softened economy. But is it also resistant to the Coronavirus? While the longer-term implications are uncertain, as it is a fluid environment, here is what Pursant, LLC is hearing from its vast network of dealmakers and what they are experiencing today.

• BSC transactions in the initial stages of marketing and those about to be launched are most likely on pause until acquirers in the marketplace have the physical, intellectual and emotional bandwidth to competently evaluate an acquisition opportunity and can commit resources to the pursuit.
• SC transactions in later stages and either near LOI or under LOI are typically proceeding, albeit at a slower and more cautious pace. Exceptions include deals in which the underlying customer segment served (restaurants, theatres, events, etc.) will be significantly negatively impacted by the crisis in the mid to long term; such deals are being halted, restructured or at the very least having more robust material adverse change (MAC) language inserted into definitive agreements.
• Those looking to pursue a sale transaction are taking advantage of the temporary additional bandwidth professional service firms have to help prepare their businesses and related transaction materials for sale. When the worst of this is behind us, they will be prepared to launch their contemplated sale transaction and expectations are that the market will be receptive.
• Many BSC’s are doing well during this period due to heightened sanitation requirements in some facilities. These heightened service levels could continue for an indefinite period of time, benefiting BSC’s. BSC’s that have slowed as a result of this crisis, will likely resume services at pre-crisis levels when the worst of the crisis appears to be in the rearview mirror and people return to work. As stated earlier, BSC performance during this period will vary by the impact on the underlying sector served.
• For valuation purposes, any short-term negative or positive impacts on BSC earnings will be adjusted out of the go-forward proforma earnings and have little to no impact on the earnings number used for valuation purposes. If service and sanitation levels are indefinitely reduced or increased it will ultimately impact valuation. Overall, when we are on the back half of this crisis, BSC businesses will likely trade at pre-crisis or slightly softened valuations depending on if a recession is triggered and how severe the recession is.

The current Seller favorable market is being driven by a lot of Buyers with available cash and access to cheap loans chasing too few good companies. When the worst of the crisis is behind us, Pursant expects the cash and capital to still be available. Pursant also expects the BSC space to be viewed as a safe haven for investors compared to other sectors that will struggle to recover from the crisis.

Pursant is an investment banking, financial and management consulting firm that supports and executes middle market M&A related initiatives and helps business owners grow enterprise value. 

They use a deep immersion process, our expansive networks and experience as owner/operators, dealmakers and financial professionals to effectively deliver on these critical initiatives for which most companies do not have time, manpower or expertise. 

To learn more about how Pursant can help you, contact Mark Herbick at mherbick@pursant.com, call 847.229.7000 or visit www.Pursant.com.