M&A Soundcheck – The Pandemic Effect

First off, on behalf of Intrepid, I hope you and your families are doing well, staying safe, and adjusting to life in a pandemic. When we gathered at CES and NAMM in January, none of us would have expected that a global pandemic, social distancing, working from home, and distance learning would dominate the first half of 2020 and become our new reality.

With regards to M&A activity, 2020 has been a bit of a rollercoaster. After a strong start to the year, most companies and private equity funds pressed pause for 30 to 60 days in March to focus inward. Triaging the fallout to their businesses of a lockdown environment: addressing capital needs, trying to right-size expenses amidst anticipated sales declines, working to understand the many government programs available to help businesses, creating plans for worker safety, and on and on.

However, by May it became apparent that many of the sectors tracked by Intrepid’s CCT practice were beginning to benefit from the shift to a home-based economy. As people adjusted to the “new normal”, consumer spending shifted from travel, leisure, and restaurants to DIY projects and hobby industries and making the work-from-home environment as functional as possible. Companies selling consumer electronics, gaming accessories, residential A/V and music technology products all started seeing dramatic increases in sales notwithstanding closures of major retailers such as Best Buy, Guitar Center, and Game Stop. Consumers sought out products through Amazon and company-run Websites. Business models changed overnight.

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Many of our clients saw a tremendous surge in demand and the concern changed from “how do we survive” to “how do we manage growth we haven’t ever seen before”. Companies quickly ramped up eCommerce capabilities, sought additional capital to meet demand and utilized air freight to accelerate imports from Asia from suppliers who were just emerging from of their own COVID-19 recoveries.

M&A usually follows growth and this trend continues to hold true in 2020. We are seeing a significant increase in buy-side and sell-side M&A activity in virtually all of our sectors, save for live music, which sadly will be among the last of the segments to recover. However, notwithstanding the lack of live concerts, no sector has seen a greater acceleration in M&A dialogue than MI and music technology over the past several months. We expect this will translate into 2021 being one of the busiest M&A years on record for the industry.

If you are a business owner and thinking about the value of your business, options for liquidity, or if you are considering your own acquisition strategy or capital needs, please do not hesitate to reach out. The market is fluid and we are here to help make sense of it for you.