It’s been two long years since the onset of COVID-19. The roller coaster ride through the pandemic has been met with highs and lows for business owners across the country. The ever-changing business landscape has forced business owners to adapt quickly while making major operational decisions.
Many business owners are left wondering how have the last two years impacted the value of their business? Should I sell now or wait a few years until we are through the turbulence of the pandemic?
The impact of COVID-19 varies from sector to sector, but each business owner will likely find themselves somewhere below:
Struggled through the last two years – unfortunately for some, they didn’t make it through the worst recession this country has seen since the financial crisis in 2008-09 or are still holding on for dear life.
Maintained levels similar to pre-COVID-19, potentially with changes to their operations.
Spike in business – the last two years have been banner years for businesses in certain industries where consumers have reallocated their spending to. Some business owners have found new markets, such as online, to preserve or grow their market share.
Some key considerations when evaluating a company’s strength post-COVID-19 and thus determining a range in value of a business:
Is there background to provide support as to why the business has decreased over the last two years? Can the business realistically rebound to regain lost market share? If so, then there is the potential that buyers will agree to adjustments to smooth out the normalized earnings in line with pre-COVID results.
Is there solid background to provide support as to why the results have increased over the last two years? Have there been changes to the operation that are expected to continue to benefit the business post-pandemic? Or is the increase just a “COVID bump?” If the changes to the operation are quantifiable and the support is there to show that the increase is maintainable, then these changes will likely be positively reflected in the value of the business.
The Canada Emergency Wage Subsidy (CEWS) and other government funding received through the pandemic would typically be considered one-time, non-recurring revenue and thus be deducted from Normalized EBITDA; however, this may not always be the case. A conversation with your M&A Advisor to look at your specific situation will clarify how a buyer may view those “one-off” scenarios.
This is all to say that the impact of COVID-19 will have varying effects on business valuations depending on the size of the business and the industry in which it operates.
The decision to sell now or wait a number of years is a common question business owners are faced with these days. It’s never too early to have a confidential chat with an advisor at Confederation M&A to determine what is best for you.
Peter MacSwain, CPA