The NorthView Compass
For your daily time-flies-when-you’re-having-fun reminder, it has been 14 months (!) since we started this COVID mess and the light is finally starting to appear at the end of the tunnel. The days have certainly been long, but the year, or in the case, the 1.17 years feels, dare we say, short.
Vaccines are being administered at an extremely rapid rate and states like Florida, Texas and others have been open for some time, but even those more reluctant to do so, like New York, New Jersey, and Illinois are also beginning to loosen COVID restrictions.
M&A activity is on fire and continues to be the talk of 2021 with Q1 setting the second-largest quarter on record in terms of total value (a 160% increase from Q1 2020) and doesn’t seem to be slowing down. Bolt-on/tuck-in transactions (smaller deals that would easily be absorbed by an acquirer due to immediate strategic value) and large, big-ticket acquisitions seem to be the primary drivers of the M&A craze. Based on our discussions with buyers of companies with EBITDA ranging from $5-20MM, who have plenty of capital and interest in participating in the M&A wave as well, simply aren’t seeing a lot of activity.
Conversely, the companies in that same range have, like during the pandemic, continued to “kick the can” in hopes of earning their way out of a hole or capitalizing on the newfound momentum. This goes for financing these businesses as well. Lenders have been, for the most part, very understanding during the last 14 months, but we’re starting to see them play hardball a bit more with their problem borrowers.
Do lower and middle market companies begin a more committed ride on the M&A wave?
What happens when the Biden administration tax hikes take hold? Does overall M&A activity pause to digest higher capital gains treatment?
Do banks and other lenders stand their ground more forcing companies to make tough decisions?
All questions that we’d love to get your feedback on so shoot us a note. Either way, it should be interesting to see these things play out.
Lots going on this month, but don’t forget Mother’s Day is May 9th, Cinco de Mayo is…May 5th, and May the 4th be with you!
About NorthView Advisors
NorthView Advisors is a full-service, lower-middle market focused, investment bank that prides itself in establishing and maintaining meaningful, personal relationships with its clients and investors.
Financial Concept: Inflation
There are a few people in this world who, when they speak, you’d be foolish not to listen. Legendary investor Warren Buffett is certainly one of them. During Berkshire Hathaway’s annual meeting last weekend, the “Oracle of Omaha” made it very clear that he believed inflation has not only already begun at a faster rate than Fed Chair Jerome Powell is willing to admit, but is accelerating due to both increasing demand, struggles with some areas of the supply chain, and increased labor costs.
What is Inflation?
Inflation is an increase in the prices of goods and services in an economy over time.
Why is Inflation relevant?
Input costs, the price of raw materials, commodities, etc. have all surged in recent months. Combine that with potential supply chain disruption and rising labor costs and companies will, in turn, raise prices as well to maintain reasonable margin levels.
The opinion on whether or not inflation is here is as polarizing as Yankees vs. Red Sox, Frazier vs. Ali, Ohio State vs. Michigan, you get the point. Bottomline is that IF inflation is actually higher than the Fed’s 2% expected annual rate, we could see interest rates and thus the applicable margin above the base rate climb as well. This forces companies and consumers to rely less on cheap debt that they’ve had access to for over a decade now and more on their own purchasing power.
Understanding The U.S. Debate About Potential Inflation – Deloitte
M&A activity is off to a hot start in 2021, setting the second-largest quarter on record for total value of pending and completed deals at $1.3 trillion. With plenty of capital available and ready to invest as the economy continues to reopen, M&A strategies are being dusted off and deployed, particularly in the U.S. which saw volumes increase 160% year-over-year.
Global M&A Sets First-Quarter Record as Dealmakers Shape Post-COVID World – Reuters
Like everything else over the past year, the M&A market was significantly impacted by COVID. As markets continue to open at an ever-quickening pace, we’re beginning to see the effects of those changes in deals being done. This overview provides business owners an insightful primer on underlying dynamics driving these results and what they mean for the value of a business today.
A dedicated resource of curated content for CFOs
As the saying goes, with some things it’s better to have it and not need it than need it and not have it. When it comes to capital for your business though it’s best to get it when you can get it. As this article spells out, that time is probably…now.
Bessemer Finance Leader: ‘CFOs Should Be Raising Capital Right Now’ – CFO Dive
With banks moving on from LIBOR as their defacto benchmark for loans and trades, the question of what’s next looms large. Despite regulators pushing their preferred choice of SOFR, many alternatives are making their own case to banks and lenders. For them, this is a “once in 100 years” opportunity and they’re working to make sure they don’t squander it. For the rest of us? That means we shouldn’t expect this discussion to end soon.
New U.S. Credit Benchmarks Gain Traction As LIBOR Deadline Approaches – Reuters
Other Recommended Reads
IRS Provides Safe Harbor For PPP Loan Deductions – BDO
Supply Chain Shortages Not Going Away Soon – ISM World
An analysis of Biden Administration tax proposals and how they affect Individual, Corporate, International, and Capital Gains treatment – Tax Foundation
5 Mistakes We Make When We’re Overwhelmed – Harvard Business Review
Just Horsing Around
The 147th running of The Greatest Two Minutes in Sports (aka The Kentucky Derby) was run this past weekend. A few interesting facts:
Derby winner Medina Spirit, was sold by the original breeder for only $1,000! That is certainly up there as one of the most what-could-have-been sales of all time. Although, no one will top Ronald Wayne when he sold his original 10% founders’ stake in Apple, Inc. for just $800.
Ironically, top earner this year was Essential Quality who didn’t even get bronze (he finished 4th).
Gotta love the names of these horses:
– Soup and Sandwich
– Hidden Stash
– Hot Rod Charlie
Our favorite horse name from the weekend at Churchill Downs this year…Drop Anchor. No surprise given his name, he finished 9th in his race, which was a prelim to the Derby.
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