On July 15,2020, iGlobal Forum held a virtual round table of lower middle market independent sponsors and capital providers to discuss deal trends in the post-COVID world. Here are our top four takeaways from the discussion:
- How COVID has transformed the deal environment
As new strategies and societal norms have developed to counter the pandemic, day-to-day changes have crept their way into nearly every part of business, including the M&A market. Whereas the market was favorable to business sellers just six months ago, buyers are finding themselves in increasingly stronger positions to deploy capital post-COVID. However, buyers and sellers may find the sale process more cumbersome, as social distancing restrictions make it difficult to conduct in-person site visits.
- What capital providers seek in partnerships with independent sponsors
When capital providers are considering a partnership with an independent sponsor, they evaluate a number of characteristics to determine fit. Providers most commonly seek out sponsors who have sector expertise, strong proprietary deal flow, and alignment on strategies such as leverage, growth, and involvement in portfolio companies. In addition, they prefer sponsors who bring experience and who have a history of exceptional relationships with previous capital providers.
- What independent sponsors seek in partnerships with capital providers
Independent sponsors have their own set of needs when evaluating a potential partnership with a capital provider. Most importantly, sponsors are looking for flexible partners who can find alignment on the operational and financial role of each party in a deal. Many independent sponsors prefer capital providers who supply capital, while granting sponsors the freedom to manage relationships with sellers and to drive operational expertise.
- Peering into the future of the deal market
Presently, players on all sides of M&A deals have remained cautious amid continued economic uncertainty. While valuations have remained steady for in-process deals, panelists expect them to fall significantly into 2021, creating opportunities to purchase stronger businesses at more attractive prices in the next 6-24 months. Buyers should expect most opportunities to deploy capital to come in 2021.