GulfStar Middle Market Commentary – June 2020

The year 2020 started off promising but quickly morphed into a path of grave uncertainty as a global pandemic, economic crisis and tense political climate ensued. According to GF Data, the first quarter of 2020 was active, with two-plus months of normal activity prior to the onset of COVID-19 in early March. The favorable economic and financial market conditions that most M&A practitioners enjoyed during a nearly 10-year expansion, came to an abrupt halt. The aftermath of the economic shutdown is still ongoing as companies struggle to stay afloat, keep workers employed and determine how to survive this new normal of social distancing. Certain pandemic-proof businesses have fared better than others, but many are struggling to survive the financial losses. Post-pandemic conversations with private equity groups revealed a new willingness to invest flexible capital for balance sheet repairs given the current situation. Buyers and sellers recognize that valuations will not be as competitive as previous years, so many deals have been placed on hold indefinitely. The long-lived seller’s market is now marked with an abundance of caution, as business owners assess the damage and navigate through a difficult recovery period.