Q: Has Covid-19 had an effect on the price buyers are paying?
A: At Gunner & Co., we have deals in two key stages – pre financial offer and post financial offer. With deals where offers have been accepted and due diligence is in progress or complete, so far, we are seeing that buyers are largely honouring the offer made and, on occasion, actually improving terms. Only one buyer has sought to revalue the business in light of a change in income and even this gives the seller the benefit of a year’s market growth opportunity to recover the valuation.
Where offers haven’t been made, many buyers are looking to be flexible to identify a middle ground which both parties can benefit from. So this could be longer payment terms to give sellers the chance to see the benefit of a recovered market while also having the chance to step away now. Or even in some cases, pre-drop valuations or increased multiples.
Gordon Kerr, Ascot Lloyd’s acquisition director commented on this to us: “We’ve quickly adapted as an organisation to new ways of remote working, and proceeding with business as usual. We have honoured acquisitions which were agreed pre Covid-19, and remain active in the market for new opportunities. We are looking at various mechanisms to help both buyer and seller, including flexible payment terms to allow for market recovery”.
Many buyers want to buy and their motivations are fairly long term, so they would rather find a way to continue working on acquisitions now, in a way that works for sellers too.
Q: What is the current ‘state of play’ with potential buyers? Are they pulling back completely, changing their prices or ploughing on as normal?
A: I’m seeing varied reactions from our buyers – indeed two large players came out in the press last week with polar opposite stances.
IWP for instance are very much moving forward with acquisitions, with David Inglesfield, CEO telling me: “While the circumstances around COVID-19 and, its impact on the markets, are unprecedented, I don’t believe the current environment will meaningfully alter trends around IFAs looking for investment opportunities. If anything, it amplifies the need for investment in technology that allows for digital client communication. Clients will want to be able to check their portfolio and assets remotely at any time. We expect to continue to see local IFAs looking to join larger groups who can provide them with better operational capabilities.
“Our current acquisition pipeline remains strong, although some terms may need to be slightly adjusted to meet current market realities. We see the overall direction of the market staying the same.”
Many clients we are working with are ‘ploughing on’, although not necessarily as ‘normal’ – see the answer above on pricing and how buyers are innovating to secure deals.
We know a few of the large buyers are pulling back, but generally this has meant deferral rather than withdrawal. Where time, cost and effort has been spent in reaching agreement, our experience so far is that buyers would be reluctant to abandon a project entirely. The response has been to either defer the acquisition or offer more favourable commercial terms. Decisions on what to do appear to be dictated by the acquirers long term strategy and how they are able to access funding. Buyers that have secured mutual agreement on a deal will likely prefer to defer rather than abandon a deal completely.
Continue reading article…
