Managing an Exit in a Global Crisis

By Jason Felger

The markets, the business climate, the world – it’s all changed dramatically over the past few weeks. More is unknown than known right now, and it seems likely we’ll be in this unknown state for some time. Just like everyone else, buyers are digesting the evolving information on a day-to-day and, often, hour-by-hour basis. For business leaders, keeping their companies strong and stable is second only to the health and safety of family, friends and colleagues, and that’s driving a clear focus on their core business and existing investments.

That doesn’t mean M&A activity has ceased to exist – we’re still seeing transactions close, management meetings and letters of intent – but these unprecedented times are changing how best to manage through an exit process. At Jump Capital, we’ve had dozens of conversations with CEOs, investment bankers and buyers in recent days, learning what’s on their minds and sharing our perspective on this environment. Your approach will certainly depend on where you are in the process – here’s how we’re thinking about it:

You were considering an exit

By any measure, we had been in a dynamic, record-setting M&A environment before the global pandemic hit. The high multiples and brisk pace of deals led many CEOs to consider moving into the market. That may have been your thought in January or February, but it’s time to step back and see how things play out over the coming weeks and months. If you were considering an exit, it’s likely that you’re at the helm of an attractive business with strong metrics. How can you maintain your leading position throughout this period of uncertainty? I’m telling CEOs to pay particular attention to retention numbers – if you can hold or grow your retention rate in this environment, it speaks volumes about the value of your solution. Also, don’t hesitate to operate heads-down, financial and strategic buyers will appreciate this and as more information comes in every quarter plan to revisit your path forward.

You’ve been preparing for an exit

Perhaps you’d gone a step beyond consideration, and you were actively preparing for a potential deal when the environment changed, moving your company toward a large fundraising round or sale. The best course of action is to continue your preparations – hone your projections, complete needed materials and of course have a crisp strategy on how your company is now navigating our new economy. Now isn’t the time to make first calls, but you can ensure you are ready when the time is right based on company performance, industry dynamics and the fast-evolving macro signals that will crystalize in the coming weeks.

You’re in the market without an offer

The trickiest scenario for a CEO right now? You’re out in the market, but without any offers. If you’re in this situation, you’ve likely moved through initial outreach, started management meetings…perhaps due diligence has already begun. You’ll want to work closely with your banker to create a targeted game plan, moving company by company and conversation by conversation to find out where things stand with your unique set of potential buyers. Are you likely to transact with a public strategic buyer? In this environment, they’re focused on the company’s balance sheet, making a transaction less likely. On the other hand, a financial buyer is certainly keyed into the macro environment but facing very different circumstances. While you can expect a slowdown in deals in the short term, with increased attention on price and valuation, they’ll still need to deploy capital.

The pandemic has clearly shaken up the way we do business. Understanding how things have changed will help you and your team navigate a process that’s already in flight. These new realities are counter to the exit process we’ve come to expect:

  • One of the key moments in any exit process is the face to face management meeting – it’s the first real fork in the road that tends to move the conversation forward, or not. With in-person meetings not an option for now, these initial contacts may happen via video platforms or may be delayed altogether.
  • You likely shared your 2020 projections before this drastic shift in the global environment – so now what? Every portfolio company I’ve been in contact with is reevaluating its 2020 forecast, with the majority looking to reforecast. No, it’s not ideal, but embrace it as an opportunity to further educate parties on the resiliency of your company.
  • Perhaps the most important thing you can do in this situation is practice patience. “Time kills all deals” may not be applicable in this environment – everything is taking longer right now, even if a potential deal is moving in the right direction.

You have an offer in hand

If you’re fortunate enough to already have an offer in hand, it’s now up to you to do anything you can to sprint to a transaction close. Moving quickly is the mindset in any environment, but it takes on a new importance now. And while in the past, it might have made sense to use competitive pressure to improve the deal, that approach may no longer be prudent. If your offer is economically sound and your buyer has good intentions to complete the deal, it’s best to move forward and do so as quickly as possible.

No matter where you are in the exit process, there’s a lot to consider. At Jump Capital, we’re monitoring the situation closely and staying in close contact with our network, and we’re advising CEOs to do the same. It’s more important than ever to maintain strong relationships, even if it’s at a distance. I hope you all stay safe and healthy.

By Jason Felger

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