The deal market isn’t dead in these uncertain times, but M&A has taken on a different look. Along with the biotechnology sector, strategic companies that are buying targeted assets of other companies are still very attractive for strategic buyers, says Ice Miller Partner Rob Ouellette.

“A strong company wants to buy a division off another business — typically a competitor — and they know what the assets are, they know what the customer relationships are, and they don’t care what historic EBITDA is,” he says. “They want to acquire that business or that division, because they know they can do something better with it. That fact pattern is where the deals are right now.”

However, the turmoil in the economy is here to stay, which in turn will affect many parts of the underlying business model.

“We’re all getting the sense now that it’s going to be a much longer time until we all return to ‘normal,’” Ice Miller Managing Partner Michael Jordan says. “And I’m using quotes on that because what we see in response to prior recessions and prior crises, like the great financial crisis and Sept. 11, the world changes, and it changes on a more permanent basis.”

Ouellette and Jordan spoke with the Smart Business Dealmakers podcast about M&A and other issues C-suite executives are dealing with during the COVID-19 pandemic.

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We were in a seller’s market where multiples were exceedingly high in 2018 and 2019. Do you think we’re shifting toward a buyer’s market?

In theory, probably yes, but here are the two big caveats. One is that sellers still remember the multiples that were being whispered in their ears a month ago, six months ago. Those multiples aren’t coming back any time soon. Although it should be a buyer’s market to some extent, it’s just too recent that sellers have higher expectations than what the company’s worth.

The second thing that’s going to happen is that even companies that are still doing well through this, there’s going to be some reticence on behalf of buyers to dive into that industry. They’re going to factor into and discount the bulge of the business, because we’ll always be under a pandemic. They’ll want to discount the good first quarter of 2020 and the good second quarter of 2020, and that’s going to be hard for sellers to get their heads around.

You work a lot of PE funds. What challenges are they and their portfolio companies facing at the moment?

The unknown is whether or not the demand is going to pick back up again. There’s a lot of talk about when the states will reopen for business, and whether it’s rolling openings or regional openings. People are trying to handicap how fast demand returns for each of their particular companies — and honestly, law firms are doing the same thing.

And that’s a high-stakes game right now.

When we start reopening, how long do you anticipate the transition period will be for companies to be back up and running as usual?

It’s industry specific, but they’re going to want to see. Let’s say we’ve turned a switch and the country is back to relative normal by the end of June. They’re going to want to get through the end of the year holiday season, and sit back and say, ‘Well, the first six months looked like this. What dud the second six months look like? Is my performance in 2020 an average of those two periods of time, or was the second half of the year a better indication of the future?’

Each individual business owner or management team is going to have to make that decision.