The BCMS Acquirer Survey 2020: How will the Covid-19 pandemic affect business sales?
Are buyers still buying? Survey highlights
- Only 3.2% of buyers have cancelled acquisition plans due to Covid-19
- 96.8% are still on the acquisition trail
- 54.8% have either accelerated or not changed their plans — with the remainder deferring
- 72.3% said that finding a suitable target was still the most important factor in deal-making
- 72% would consider acquiring businesses suffering financial difficulties
- Deals may take longer, with due diligence even more important
In late April 2020 — at the very height of the lockdown — the BCMS team conducted a survey of 188 acquiring organisations: trading companies operating in a wide variety of industries across the globe. The results paint a fascinating picture of the M&A market over the next 12-18 months, and offer unique insights into buyer strategies that will impact every business owner considering a full or partial sale. A detailed report is currently in preparation, but in the meantime, I’d like to share a few key findings. What we uncovered may surprise you.
Who took part in the survey?
To get a full picture of the acquirer landscape, we interviewed companies who are either actively acquiring businesses or have logged their acquisition strategies with BCMS, with turnovers ranging from below £10m to £250m+. Of these businesses, over 34% post revenues in excess of £100m, and 18% are stockmarket listed. M&A is a global industry, so we went international: 40% of respondents are located outside the UK, dominated by businesses in the key M&A markets of Europe (20%) and North America (14%).
Sectors weren’t cherry-picked. We have detailed, granular responses from businesses in in-demand industries (healthcare/pharma, food, logistics) but also those in severely affected lockdown markets, such as retail, clothing and automotive.
While there was understandable variation by sector, the consistency of responses at a high level makes it clear that there is still appetite to acquire: 96.8% of respondents are still ultimately planning acquisitions despite the pandemic, whether immediately or by deferring for six months or more. The majority (54.8%) will either not change their buying strategies, or actively accelerate them. The picture in some industries is startling: in IT/technology, for instance, nearly 20% of businesses are ramping up their plans to acquire.
Negatives vs positives
Our detailed questions covered target size, sector, geography, and the impact of the global pandemic on their business model and buying strategy. There were some expected results: 83% of businesses surveyed said that the pandemic has had a negative impact in their sector. 32.7% said acquisition budgets — their war-chests — would be reduced, with cash diverted elsewhere.
There’s a lot of talk about adjusting the ‘new normal’. But our findings suggest that acquirers are very much maintaining their previous focus. While there will be a delay to deals, 90% of acquirers are expecting a return to pre-Covid-19 deal activity within 12 months.
Despite the widespread disruption, buyers are still focused on finding the right companies to fuel growth. So it is that locating a suitable target outweighs all other factors affecting acquisition decisions: 72.3% cited it as very important, and the majority (77.5%) are looking for target businesses in the same turnover profile as pre-pandemic. (Intriguingly, 12% of North American acquirers are actually sizing up larger businesses than previously!)
Key messages for business owners
The goalposts have most definitely moved. Just six months ago, Brexit dominated the business agenda. Today, just 4.4% of UK respondents even consider it a factor.
If you’re an attractive SME business, the profile of your potential acquirer may be changing. Many acquirers traditionally hold set-in-stone, often arbitrary financial criteria. “Nothing under £1m EBIT” is a common request. But 13.9% of buyers have now told us they would seek smaller targets. If you’ve been significantly affected by the pandemic, it doesn’t mean you’re suddenly unsellable: 72% told us they would consider acquiring a business in some financial distress. So, it’s reasonable to assume we might expect to see fewer larger deals, but greater volumes and increased competition for smaller, specialist businesses.
Although our survey reveals a continuing determination to grow via acquisition, the pandemic has unsurprisingly made buyers more risk averse. A number of acquirers told us that they anticipate deal-making will be more thorough, and due diligence more detailed. There will be greater scrutiny of underlying financial performance and more emphasis on the ability of a target business to generate cash. Some commented on the unreliability of a target’s past performance as an indicator of future performance. Understandably, your future projections may be treated with more scepticism. It almost goes with saying: preparing effectively for the sale process is critical.
Although BCMS represents client companies looking to sell, we stay close to the global marketplace of acquirers. Even during the pandemic we are completing deals, and speaking to buyers every single day. This exercise reinforces our long-held belief: that reading the market regularly, and understanding what buyers look for in a business, is the key to successful transactions.
And in times of uncertainty, it is even more important.
To find out more about the survey, our methodology and criteria, email firstname.lastname@example.org