Will COVID-19 Impact The Value Of My Business?… It Depends

As we continue to take companies to market during COVID, we’re asking new questions about business response plans and resilience. It’s been interesting to see the different attitudes and approaches.

The business owners who are burned out are very much taking a “sell now and let the next person deal with it” approach. We’ve been in phone interviews where you can practically “see” the dismissive body language on the other end of the line. “Remote work? Yeah, I never really believed in that,” one owner said.

This company does have some remote work capabilities, but the systems aren’t fully accessible outside the office. And illness has caused some capacity issues in their manufacturing center.

Yet, the company’s products are in-demand and they’re still doing well through COVID. And while that’s a great test of their resilience, I can almost guarantee they’ll be leaving some money on the table because the new owner will have to take the time, energy, and investment to carry the company into the new normal.

Change is challenging in any business transition. Surprise, people don’t like it. The more changes the buyer has to implement, the harder the transition is for them and the employee team. That means more risk and risk translates to lower valuations.

Planning For the Worst

On the flip side, we talked to another business that’s also been doing well and is considered an essential operation. They were already in a good position with remote work before the pandemic started. But once COVID hit, they put their contingency planning into overdrive.

They’ve identified primary and secondary backups for all key employee roles and documented core job processes. In terms of their supply chain, they ramped up efforts to diversify suppliers and establish alternative resources for product components.

They even developed ways for their assembly teams to take work home, with kits that can be assembled away from the office. That’s been beneficial for staff under mandated quarantine as well as for some parents who now need to be home supervising school-age children.

As we’re taking this company to market, they’re going to get a higher multiple than they would have pre-COVID. That’s not only because they’ve continued to thrive and grow through the pandemic, but because they already have strategies in place in case things get even worse.

They’ve fined tuned their processes, creating ways people can work with flexibility and still get the job done. They’ve diversified their supply chain and developed relationships with secondary suppliers. They’ve documented their business and cross-trained their people.

That all looks good in the eyes of a buyer. The company will be well received in the marketplace and get a strong multiple.

Resilience Matters

These are tough times. And we may have many more tough months ahead. Resilience matters, not just in terms of today’s pandemic, but because the global business environment is becoming more unpredictable.

Issues of technology, global politics, inequality, and climate are accelerating the pressure on businesses to stay agile. COVID-19 is today’s challenge. But conflict, instability, and future health emergencies could, in a very real and present sense, be in our future.

Managing for resilience requires long-term thinking and a willingness to plan for things that are unknown and unpredictable. For some businesses, that could mean investing time and effort into systems they may never have to use.

Investing in contingency plans you don’t use is hard. But I’ll take that over contingency plans I do have to use any day.

Building a SWOT Habit

In truth, we work with only a few companies who have a strong SWOT analysis habit of regularly assessing their strengths, weaknesses, threats, and opportunities. But this is the very exercise, the skill, that organizations need to develop.

It takes practice and discipline to read the marketplace, acknowledge limitations, and learn how to prioritize risk reduction efforts in a way that makes sense. Practicing this work is a good challenge for your leadership team. It’s good for your business and your value. And it could be the work that carries you through the next crisis.

Robert Jones

Partner | M&A Advisor