There is no question that Covid-19 created a stark situation of before and after in nearly all industries. Things are different now, more digital, virtual, and slower to generate results. Expectations must of course be adjusted accordingly as we make our way into uncharted waters within modern business. As we begin to return to full speed, many will face an uphill battle as deal flow begins to normalize – making now an excellent time to take the temperature of middle-market M&A professionals at the beginning of Q4 2020.

Opus Connect sent out a business development survey in September 2020 to speak directly with deal professionals that have gone through the challenges that Covid-19 posed and are beginning to come out the other side – a bit battered, but still hanging in. The goal of this piece is to provide the findings of that survey and give our audience a quick yet thorough picture of the present deal flow landscape.

Obviously, the travel industry has been hit extremely hard and that is reflected in our survey results, as 79% of our respondents had yet to resume regular business travel at the time of this survey. In a similar vein, virtual settings are working well, as the industry adapts to Zoom life, to help connect with their peers and allow networking at virtual roundtables much like our Opus Connect events. A robust 95% of professionals told us that virtual settings are working for them, thankfully enabling some aspects of the deal flow process to continue.

However, that doesn’t mean that deals have returned to previous levels– just that professionals are adapting as best they can given the circumstances. Responses very clearly indicate that deal flow is not where it was, with more than half of the survey respondents (57%) telling us that while there is “a surge of activity on the sell side and many inquiries from buyers,” deal flow is not yet where it needs to be to constitute a recovery from what McKinsey and others have termed a “Great Reset” or a “Great Pause” during the Covid-19 lockdown. When expanding upon that query, many professionals rated their deals at around 50% of normal, with a few rating it 20% or lower. It is worth noting that our pool of responses come from professionals in a variety of industries, so some variation is to be expected, but the average response indicates that there is a long way to go before deal flow is as robust as it was in years prior.

Several of those surveyed mentioned that restructuring activity has picked up, which makes sense as companies faced with less revenue need to adapt, streamline, and shrink according to global economic activity. Middle market M&A professionals have closed deals, with slightly more than half (52%) of our professionals telling us that they closed deals since the start of the pandemic. The lack of deals closed demonstrates that this is a 50/50 endeavor – but everyone is facing those same odds. Meeting in person is still favored, but less important as the industry taps into what were likely underutilized methods of conducting business virtually, with one response noting that they had “launched several new deals and have a huge backlog to be launched in the next three to four months.”

Strategies for business development are at the heart of the middle market M&A industry, and it was illuminating to hear directly from professionals as they implement both tried-and-true methods for business development and also bring new ideas to this changing landscape. A few responses we’d like to highlight include the following:

• A greater focus on liquidity and leverage
• Organizing more webinars and publishing more research
• A stronger interest in local companies that can be reached by a drive rather than a flight
• Utilizing virtual meetings to reach groups and meet people that I probably would not have otherwise; utilizing virtual formats to stay top of mind with referral partners and potential clients
• Focus on add-ons while being patient with new control platform opportunities; more junior capital/structured equity deals are appearing in this uncertain liquidity/financing environment
• Focus on special situations (distressed) businesses; have leveraged webinars and direct emails to keep in contact with clients and prospects

Some excellent strategies from respondents that can be implemented by anyone in the middle market M&A industry include these five actionable suggestions:

• Make more phone calls, send fewer emails. More humor, less dwelling on the depth of the current issues. More manners, less “onto the next Zoom/call.”
• Increase your virtual, one-on-one coffees instead of the typical quick catch up phone calls to spend a little more time with the business contact and achieve a higher quality of connection
• Mine existing networks to convert contacts into clients
• Create a system of referrals to have on hand during calls to fill a potential client’s needs right away (greater reliance on word of mouth)
• Focus more on understanding the non-business aspects of a client/partner’s circumstances to orient the stress levels, and challenges on timing

The last portion of our survey focused on harvesting, maintaining, and building relationships, which are the three phases of business development that Opus Connect targets as we strive to increase our members’ network of meaningful and long-lasting connections. We asked how M&A professionals were moving through these phases in 2020, with nearly every response in the “harvesting phase” mentioning more virtual and digital outreach, attending webinars and similar events, and focusing on one’s LinkedIn connections and creating new relationships. Many were more focused on the “maintaining” and “building” phases, with one respondent noting that it is:

“…more important than ever to boost communication levels with our current investors in order to maintain and continue to build those existing relationships. We have been successful in ramping up communications with our current investors with thorough transparent operating updates, consistent virtual meetings & timely updates regarding new opportunities.”

Other excellent thoughts focused on the realization that being a “resource for others whenever possible,” as well as “keeping connectivity with existing relationships and strategically targeting new ones” was proving the most valuable in the long-term as we collectively forge ahead in the aftermath of Covid-19. One respondent in particular shared that they are “executing on deals currently in process and building a deeper rolodex of financial sponsors across different geographies, industries, deal size, and deal structures,” which provides a good model across multiples industries going forward.

We encourage our network to use this information to remain proactive rather than reactive as the deal pipeline picks up, no matter the industry vertical. Of course middle-market M&A has been deeply affected by this period of turmoil, but the road ahead shows opportunity for greater connection through thoughtful business development strategies that aim to create more robust networks, stewardship of existing relationships, and a more agile approach to deal flows taking place in a digital future.

Author:
Lou Sokolovskiy
Founder/CEO, Opus Connect
lou@opusconnect.com