As with any economic downturn, a great opportunity arises for well managed and well capitalized companies. Many poorly run businesses will shut down, see their valuations drop, or be forced to downsize and layoff a large portion of their employees. Good businesses can buy poorly run businesses for lower valuations and/or better terms (less money required from buyer up front, a higher percentage of the buyout based on earnouts). Many of these businesses will put themselves up for sale due to the uncertainty of their future as they struggle to adapt during this downturn/shutdown and will likely be more willing to accept a lower price for their company. Other potential targets include companies struggling with their debt payments. You can buy them at a discount or sometimes by them out for their debt amount and take control of the company. Economists are predicting 20%-30% of business will close permanently due to this downturn. This presents a buying opportunity for their product lines, assets, brand names, etc.
Normally when people think of acquisitions they think of a company’s assets, stock, IP, etc., however the category most often overlooked is the opportunity for acquisitions of talent. It has been well documented the labor market for employers has been very competitive over the past decade. Unemployment has been at all-time lows staying between 4%-5% making it difficult for employers to find well-trained and qualified employees, and when they did find them, companies often had to offer these employees outsized salaries and benefits. Now the paradigm has shifted in the other direction. Over 40 million people have filed for unemployment benefits since the COVID induced economic shutdown hit in mid-March. Economists are predicting anywhere from 15%-25% unemployment in the next few months as the economy feels the full affect of the shutdown. This presents well run companies with a much wider pool of employees to choose from as there are now 4-5 times more candidates available. Another opportunity for employers is many businesses have had to cut salaries of many employees to slow their cash burn. This allows well run businesses who can offer full pay to stand out and possibly lure them away to their business.
With the current economic downturn now is a great opportunity to acquire businesses at discounted prices and good, qualified employees that have been put on unemployment/taken salary cuts from these businesses.
Written by Robert Rusnak