“We're the busiest this year that we've ever been,” says Josh Curtis, managing director of Footprint Capital.
While the investment bank has a few by side transactions going on, most of its activity has been with sellers who are looking to capitalize on a strong 2020 while racing to beat the enactment of potential capital gains taxes. The urge on the part of owners to take advantage of the favorable M&A market is creating some issues for deal professionals.
“We're still talking to a handful of prospects that are contemplating potentially doing a transaction before year end, which is becoming more and more challenging as time goes on here,” Curtis says. “Just the time it takes to do a transaction as well as the schedules of all the advisors out there, whether it's advisors like us in investment banking, whether it's the lawyers or quality of earnings providers, things of that nature. I think it's becoming a real challenge to have a high likelihood to get something closed if you haven't started yet.”
Those tight service provider schedules are having an effect on the market. Curtis says he’s seeing some professionals pass on deals because they just don't have the bandwidth. He says he’s seeing longer wait times for quality of earnings providers to execute a quality of earnings report.
“On the sell side, it causes us pause to really be able to take on something of size that we're going to need a quality of earnings report on the sell side,” he says. “But secondarily it causes us to be mindful of the time line as we get under exclusivity or as the buyer hires their Q of E provider, whether it's to beat up our Q of E, or whether it's to do their own, and what kinds of delays we might have and will that revise our year timeline as we look towards year end.”
Such constraints have brought with them the need for some deal professionals to be more selective in who they represent. Curtis says among the traits that position businesses as better candidates for a sale are readiness of the owner as well as their expectations of value.
“We're meeting some owners that they might not have reasonable expectations,” he says. “They hear a lot of things, whether it's at the country club or from somebody in the industry that traded at a certain multiple, and those expectations aren't always in line with what we believe we can achieve. So I think we're pretty steadfast in what we're willing to take on, and we want to take on things that we have a high degree of certainty that we're going to close. I think many owners in this market are prepared. I think they understand the expectation. But then I think we have some that are very far from prepared ….”
Curtis spoke on the Smart Business Dealmakers Podcast about his view of the market from both the sell-side and buy-side, as well as his sense of how things could play out for the balance of the year.