Buying, selling small business during COVID- 19
TH E COVID- 1 9 p a n d e mi c h a s d i s r u p t e d j u s t a b o u t everything— and buying or selling a business is no exception. Pino Bacinello, Founder and President of Pacific M& A and Business Brokers, a seasoned entrepreneur, offered some tips for buyers and sellers.
When it comes to buying and selling small businesses, many transactions have been put on hold, Bacinello notes. He expects the pandemic to turn the long- running seller ’s market into a buyer’s market— a change that’s been predicted for 20 years.
Regrettably, many small businesses won’t survive COVID- 19, Bacinello said. In a May survey by the Canadian Federation of Independent Business, 36 per cent of BC respondents said their revenue had dropped by 70 per cent or more since the start of the outbreak. At least 13 per cent said they were considering bankruptcy or winding down.
Among those who do pull through, a big share will have owners in their 60s, 70s and 80s who’ll say, “I’ve gone through this and I’ve gone through that and I’ve gone through 2008— I’m done,” Bacinello reckons. ‘ They’ll sell.’
Bacinello thinks the switch from a seller’s to a buyer’s market will push valuations down— for some players, anyway. “The small businesses that will be able to be resilient, that quickly revamp, reinvent themselves, rebuild, those will maintain value and perhaps even enhance i t , ” he s ai d “I t hink many of those that will survive this will do well.”
For a business that’s had to close its doors, a lot hinges on what it’s done during the shutdown, he added. “If they’re just sitting at home doing nothing and praying and hoping, they’re not going to come out of this very well,” he explains. In his view, companies should be taking the time to reconsider their plans, what they do and how they do it. “Are there moreefficient systems and processes they can implement? Those are the businesses that I think will come out of this doing well because they’re going to hit the ground running.”
For anyone looking to sell their small business, there will be two or three times more prospective buyers than before, Bacinello estimates. He sees great opportunities to purchase companies whose current owner doesn’t have enough money to keep going or lacks the ability to reinvent things. “They can be picked up for very little, and somebody with creativity and business sense and astuteness can do very well with those,” Bacinello said.
Some buyers will be what he calls ambulance chasers— moneylenders and ot hers with cash who prey on struggling business. On the other hand, there’s also plenty of capital in the private equity world.
However, p r i v a t e e q u i t y b u y e r s will be more cautious than they were p r e - COVID- 1 9 , Baci n e l l o warns. “They’re going to be looking at risk much more closely,” he says. “They’re going to be looking at cash flows and projections with greater scrutiny.”
If you’ve found a business that you think is a good buy even though the owner can’t carry on, do your homework. “Assess why has this business f ailed, why has i t not r ebounded,” Bacinello said.