COVID-19 has impacted every industry and changed the way millions of businesses operate around the globe. While it’s safe to say we have not seen a disruptor of this magnitude in our lifetime, past pandemics have also forced industries to innovate and adapt. SARS, H1N1 and Ebola, although to a lesser scale, each affected the way companies operated during their respective outbreaks. But even macro-economic events such as the burst of the internet bubble to the subprime mortgage crisis can cause a tectonic shift in the status quo. As recently as last year, government-imposed tariffs impacted manufacturing entities of all sizes, causing these companies to either implement lean production measures or pass the additional costs on to customers.
The impact of COVID-19 has certainly brought a more substantial and far-reaching impact than that of tariffs; bringing with it several unique deal considerations. While a number of deals have come to a screeching halt, many financial sponsors are still looking to put dry powder to work both opportunistically, in terms of investing in distressed assets, as well as strategically investing in counter-cyclical assets. When considering deals in this environment, it is important to understand the unique circumstances brought about by COVID-19 from both a performance and liquidity perspective. Prior to executing a term sheet or letter of intent, we would recommend buyers and sellers address the following: run-rate revenue and earnings; operating cycle and working capital; concentration risk and going concern; and debt-free transaction and COVID lending.
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