Today’s pandemic-driven financial crisis has undoubtedly touched the lives of every American. Hopefully, it is a once in a lifetime event. In a short six-week period, the COVID-19 Pandemic has created one of the most significant social and financial displacements in the last hundred years.
With today’s pandemic and resulting financial crisis, like most Americans, I find myself working from home and walking the dog several times a day. COVID-19 has the potential to be a “once in a century” disaster. In a time of global uncertainty, it’s easy to lose sight of the big picture. This is particularly true when the memories of the last recession are still relatively fresh. Thanks to a dedicated group of colleagues at CEA Group and Atlantic American Partners, we are still successfully conducting business and so far, everyone continues in good health.
Past Global Life Changing Events
Having been born in Orlando at the end of World War II when it was a very small town that was dependent on citrus, a few winter tourists, and the Orlando Air Force Base, I have seen many changes over the past 75 years. These changes have ranged from the advent of commercial jet aviation and the establishment of Disney World to today’s world of AI.
There have been financial disasters as well:
Some of the unfortunate events I have witnessed:
In time, this too shall pass. We will find ourselves off the bumpy road of uncertainty and back on the highway to prosperity. In the meanwhile, perseverance and well-considered planning, are essential navigation tools.
Current Market Insights
At CEA, we are continuing to execute on active mandates and have engaged new clients. For the most part, things are progressing on all fronts, albeit at a somewhat slower pace.
While there is clearly a dislocation attributable to the pandemic-driven financial crisis, there are still buyers, particularly for strategic assets by operating companies who are still interested in specific businesses which fit the strategic mosaic of their business strategy. Any acquisition or joint venture resulting in real synergies which can improve cash flow are still of interest. Acquisitions are even more interesting if they bring economies to scale.
The private equity and investment markets still have significant interest in considering investments in certain sectors. One such sector are companies that conduct business directly, or indirectly, with the United States Government. Federal contractors and subcontractors used to be viewed as “unattractive” investment prospects for many private equity firms particularly those without this sector as an industry focus. The “Federal Government Profitability Band” is essentially limited to 9% - 12%. There are some exceptions where there are sole source contracts such as the Intelligence business.
We also are witnessing a very strong interest from private equity in providing equity, or partnering, in family and/or management buyouts of well-established, cash-flow businesses. This is particularly true for sectors that are not substantially impacted by today’s environment or those who are impacted in a favorable way.
Unfortunately, getting the serious attention of PE and/or Venture firms can be difficult because of the crisis, particularly with its current and long-term effects on portfolio companies. Many of these need cash infusions to deal with cash flow issues.
When considering financing equity and/or debt, this is a time to seek professional advice and assistance. Advice should be taken from experts with a proven track record and a database of personal relationships and contacts. It is essential to be able to get through to decision makers who will give an honest assessment of the opportunity presented.
Technology investors are still active, however, much more cautious. Proven application, significant contacts, and multiple and recurring revenue streams are all positive attributes which can elicit interest. Startups, “blueprint” companies, and pre-revenue ventures are almost impossible to finance except at the “Angel level.”
It is a time to “hunt with an elephant gun,” not a shotgun, and with the assistance of an experienced professional investment banker.
If you are interested in a confidential assessment of your prospects to sell, merge, or for strategic joint venture or financing in this environment, please feel free to reach out to us. At this time, email is the best mode of communication and we will respond as soon as possible. We are more than delighted to schedule a time to have a confidential conversation and execute an NDA.
If you are interested in acquiring very specific assets on a highly targeted basis, we would be pleased to speak as well. We could also discuss acquisition financing and realistic alternatives. This is clearly the time to make important decisions based on expert recommendations and not on wishful thinking.
Business is far from “business as usual,” and will be for a while, however, deals can and will close with the proper focus. Some of the best opportunities arise in times of difficulty for those who have the foresight, determination, and courage to make things happen.
We appreciate your confidence, support and friendship over the past 47 years and hope you remain safe and healthy.