Selling a Business In the Coronavirus EraIllinoisLower Middle Market” and “Main Street” Business Owner Perspectives.

I wanted to share some conversations and observations which we at and Premier Business Group, are currently hearing and seeing from the Mergers and Acquisitions environment, both buyers and sellers, of “Lower Middle Market” and “Main Street” privately held companies – located in the Chicago, Northern Illinois, and Midwest region. 

Although “Main Street” and “Lower Middle Market” businesses have born the brunt of the Coronavirus inflicted economic distress, there are M&A deals getting done, institutions willing to participate and opportunities available for the market as it surfaces from a turbulent, singular era.

The following is a general, 30,000 foot aerial view of today’s Midwest Coronavirus influenced M&A market.

Selling My Business Successfully – Illinois’ M&A State of the Market

Buyer Activity:

There is currently plenty of activity for successful, historically good businesses with consistent cash flow in this Coronavirus environment. It’s been difficult keeping a successful business listing long, especially when it’s in a space where there is interest. Buyers have become unusually aggressive. Also, buyers in many cases, have discounted 2020 financial numbers in deference to a consistently strong, previous cash flow history. The SBA has been a facilitator and catalyst here. However, deal contingencies and Material Adverse Change (MAC) clauses are becoming more prevalent in purchase agreements.

Deals will require access to adequate capital, the right deal strategy, and a willingness from ALL sides – buyer, seller, business advisors and lawyers – to structure and complete a transaction. All deals will be challenging in the months, perhaps years ahead. 

Hot spaces today around Chicago and the Illinois region are manufacturing and distribution. What’s been even more interesting is some businesses, like entertainment areas – even sell. For example, Trampoline parks in the Midwest (which should have been seriously affected) if successful and/or a strategic fit, are attracting interest and activity; Towing companies and Roofing Contractors as well, even the challenging Minority Business Enterprise (“MBE”) space…. It’s strange sometimes what we are seeing in the market, but buyers, if interested and a fit, have been very “deal” aggressive.

Simply, if your business is successful in this Coronavirus environment, there will be plenty of interested buyers. Aggressive buyers!

A New Type of Market “Seller” and “Buyer” Emerges:

New Sellers: Hearing this a lot lately, business owners have become “tired”. They have owned and operated their businesses for a considerable period of time, ordinarily they would not have explored selling a life’s work, but with volatile “ups and downs” from economic cycles and seemingly endless market challenges, have now become motivated to entertain “exiting”. “Weary”, that would be a word we are hearing from commercial bankers and M&A participants that describe Coronavirus era business owners.

New Buyers: Interestingly, many buyers are also emerging from this group – either looking for a business with a more stable cash flow or, considering a new, “different business” that is more “recession proof”. They are expressing a desire to “diversify” business holdings. This is forming a new type of “motivated” business buyer. 

“Baby Boomers” and “Gen X” Sellers:  

These demographic categories are starting to face the M&A experience. Seeing more “Baby Boomers” (1946 – 1964, 23.40% of U.S. population) and even “Gen X” (1965 – 1980, 20.79% of national population) business owners considering divestiture. If not for today’s uncertain Illinois economic environment, activity would be even more robust.

Business owners express continued concern and doubts about political direction, taxes, future growth opportunities and noticeable out of Chicago and Illinois population migration. The “future” is becoming an impactful consideration when operating and/or acquiring a business in Illinois and Chicago.

End of Paycheck Protection Program – “PPP”:  

PPP is coming to an end – and many business owners will have, or are having, serious decisions to make. We are hearing more and more private conversation from owners who are considering closing their business or confronting a forced sale when the PPP program ends. There is growing owner frustration and fatigue with the uncertain Illinois economic climate.

There are, however, buyers for these opportunities, if in the right space and with a past history of consistent cash flow. Terms and conditions will need to be adjusted to meet a buyer’s (and lender’s) needs, but buyers are there, especially for manufacturing and distribution.  I am currently working with several organizations, 501(C)(3) nonprofits who are driven to acquire Illinois and Midwest companies and maintain them in Illinois. They, and others, are aggressive buyers for manufacturing.

SBA Financing Overview:

Illinois Lending facilities have been very supportive of acquisitions. Government programs that enhance a buyer’s acquisition posture have been a catalyst. A particularly attractive SBA program ends this September 27th.

Loan structure is driven/predicated by a company’s current (or in some cases, historic) cash flow and is extended for operations, financing of Mergers and Acquisitions as well as Partner Buyouts.

Here are some generally available terms and criteria to be aware of:

Typical SBA Loan Terms:

  • Loan Amounts up to $5,000,000
  • Longer Amortizations: 10 years for non-real estate loans and up to 25 years for loans that include real estate.
  • No Balloons, Calls or Restrictive Covenants
  • Competitive Interest Rates
  • Faster Closing Schedules averaging 60 days

General Market Lending Criteria:

  • Cash Flow Based Lending Approach
  • Loans are not being restricted on Collateralization Requirements
  • No Limits or restrictions on financing “Goodwill”

Buyers, keep in mind every lending facility is different and has elasticity in their stated terms and costs. Shop! Look at several lending facilities before committing, and structure an acquisition that meets your needs. There are plenty of lenders who are eager to participate in SBA backed deals.

Overall, although a challenging environment for some sellers, there are buyers, for the right situation, who are active and looking for successful business model’s which have overcome the shocks of today’s Coronavirus environment or were successful in the years prior to 2020.