The old cliché, “In every cloud there is a silver lining,” rings true today. Clichés always contain seeds of the truth. While the Covid-19 pandemic has had a devastating effect on many large, medium and small businesses, opportunities are emerging as the U.S. economy slowly reopens.
Unquestionably, the beginning of 2020 was the right time to sell a business. Coming off of a decade-long boom of mergers and acquisition (M&A), sellers were in a position to command high premium for their businesses and buyers were willing to pay. Debt-markets were ready and willing to lend freely for most M&A activity. Then the world turned up-side-down in March. Debt markets became stressed. Today, lenders are demanding more security and stronger loan covenants.
As a result, M&A activity came to an abrupt halt. Deals fell apart. Others were postponed. According to Bloomberg, M&A activity dropped more than a third to its lowest level since 2014.
Finding the Silver Lining
So where is the “silver lining”? Some of the conditions pre-Covid-19 and the current business environment are similar. For example, a lot of capital (dry powder) is still on the sidelines waiting to be invested. According to David Ludwig, Goldman Sachs Group, “Once investors are more confident that negative tail outcomes are unlikely, we expect significant public activity across all sectors and product classes... And we expect that to occur in a reasonable period of time."
According to Bloomberg, “While private equity firms have their hands full for now managing struggling portfolio companies, they’re still sitting on a $2 trillion war chest that could be put to work as valuations stabilize... Some of the hardest-hit industries – from energy to tourism and restaurants – might provide the biggest bargains.”
However, according to Patrick Ramsey, global head of M&A at Bank of America Corporation, “Sectors like technology and health care will be at the front end of the recovery.”
No no one really knows what the “new normal” will be when the economy fully reopens. Many businesses are failing, or barely hanging on. At the same time, many companies are looking to join other businesses as part of their survival strategy while defending themselves against opportunistic bidders.
Five “silver lining” survival strategies and growth opportunities for small businesses:
1. Stay Solvent: When business owners are in the market to sell, buyers will closely examine how well the cash was managed during the Covid-19 period. Strong cash management is a good indicator of how future cash flows will be managed when the economy returns to normal. Higher valuations can be attained through strong cash management which further indicates the bench strength and discipline of senior management.
2. Focus on current customers: They are your lifeline and the best opportunity to generate additional revenue. Develop loyalty programs to increase the number of customer interactions. Communicate often with them during these volatile times. Look for ways to improve your customer service. Loyal customers can become strong references for you as you reach out to new customers. Look for ways to service customers remotely without sacrificing a quality customer service experience. Ask your most loyal customers for ideas to help better serve them. No one knows better what your customers want than your customers. Build an “idea” tab on your website so that customers can make suggestions online. Personally, respond with a quick “thank you” – regardless of the quality of the idea.
3. Examine “high tech vs. high touch” with customer interactions: Everyone is dealing with social distancing differently. This is an opportunity to examine new ways to interact with your current and potential customer base. Develop and update your electronic database and customer profiles. Examine your automated attendant systems to determine if the user options are still relevant given the current business environment. Review your website for its accuracy; develop virtual customer interaction opportunities. For example, allow your customers to log on your website to review their invoices, payment schedules and current balances. This is an efficient, cost-saving use of “high tech” without sacrificing “high touch” customer interactions. Examine cloud-based technology to help reduce costs. A careful balance between the use of technology and the use of in-person contacts will build loyalty faster than using either high tech or high touch alone. A serious mistake that many business owners make is over reliance on high tech solutions, because there can be significant savings when substituting technology for human interaction. The challenge is striking the right balance between the two.
4. Expand your customer base. Become aggressive and go after your competitors’ customers. Make personal calls to them. Ask for the opportunity to serve them. Describe your customer service policies and how you are different from your competitors.
5. Evaluate your business practices. During good times, we often neglect what we should be doing all the time. Re-examine your strategic business plan – if you have one. If not, develop one. If you need help hire a professional to assist you. As the old saying goes, “If you don’t know where you going, you will never know when you get there.” Consider outsourcing functions to decrease fixed costs. During tough times, outsourcing will give you flexibility in your operations today and in the future.
The five strategies above will not only help your survive this pandemic recession, but will provide more opportunities to grow your business as the economy reopens. It will give you an opportunity to outperform your competitors and strengthen your senior team. Potential buyers will perceive your company as having strong bench strength and being capable of operating in the most adverse conditions.
More importantly, as you embrace the five strategies above, you are, in essence, preparing to sell your business – something that many business owners fail to do. If and when you decide to sell, it will sell more quickly, at a higher valuation, with more favorable terms and conditions and at a higher price.
This is the “silver lining” that awaits you during these unsettled times.