I was part of Zoom call with private equity buyers from around the country last week. Part of the discussion evolved to how buyers will look at opportunities as the economy opens up. One private equity buyer suggested three types of post-COVID buyers, Sharks, Lookers & Creatives.Sharks, or those looking to buy distressed or desperate companies, exist in any market condition and will likely increase in number in the coming months. They will be appropriate for companies without an alternative. Some will likely prey on companies headed by frightened and tired owners who don’t think they can bring the company back to its previous heights. Lookers also exist in all economic conditions. They show genuine interest in buying, ask good questions which increase seller’s expectation of a transaction but ultimately never pull the trigger on a purchase. I would suggest Lookers are worse than Sharks. Sharks at least make offers, albeit often far below reasonable value. Lookers often waste everyone’s time and paralyze sellers who wait for an offer that never comes. We will likely see more Lookers in the months ahead with some previously effect buyers gripped by uncertainty.Creatives were defined as buyers looking to complete a transaction by finding ways to mitigate risk in an uncertain economy. Specifically, the speaker suggested these buyers will use different deal structures to close the gap between pre and post COVID values. If bank debt is unavailable, the buyer will ask for seller financing. This buyer may request an earn out to bridge the uncertainty of when revenues might return to prior levels. Some of their requests may be difficult to digest but, unlike the other categories, Creatives are willing to find ways to get a deal done.I expect to see each of these buyer types approach companies in the months to come. If you or your clients need assistance determining which type you are dealing with and how best to proceed, please reach out to one of the Beacon team. Click Here to Email Jeff
