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06.16.20

NP Connects: Buying and Selling in Turbulent Times

BY , Philip B. Taub

NP Connects brings together leaders from a variety of backgrounds to share real-time perspectives on the coronavirus (COVID-19) pandemic. Below are highlights from our June 11, 2020 conversation. 



As in past weeks, Morgan Nighan answered questions related to the CARES Act and the PPP.

The remainder of the program focused on “buying and selling in turbulent times.” In their conversation, moderators Christopher Keefe and Philip Taub, along with guests Shawn Johnson, Sean Murphy, and Sameer Singh, provide business owners with an update on the capital and deal markets, advice as to whether or not they should be thinking about selling now and an outlook on distressed opportunities down the pike.

  • The Small Business Administration released its 17th Interim File Rule, which coincided with the PPP Flex Act that was passed into financial law on June 5. The biggest clarification concerned a 60% payroll requirement—borrowers under the PPP shall spend 60% not 75% on payroll. Loan forgiveness is proportional and forgiveness will be reduced by whatever percentage you did not meet the 60%. Timing of the safe harbor date to return PPP money was moved to December 31 from June 30.
  • The Fed Reserve Bank’s actions will help the economy over time but it helped the stock market immediately. Takeaway from the Federal Reserve meeting on June 10—rates remaining at near zero for the next three years. This dampens hope for a V-shaped recovery. The annualized estimate for GDP for 2020 is now -6.5%. The current estimate Q2 GDP will be a historic -48%.
  • There’s a lot of data pointing to some green shoots coming out. High yield issuance is up YTD and the leverage loan market is showing signs of stabilization. Deal activity and requests for inbound for deal flow is picking up and it appears that buyers are feeling more comfortable. An encouraging observation is the number of private equity firms reaching out to investment opportunities that they lost out on. Many are reengaging with growth equity.
  • The mergers and acquisitions landscape has fundamentally changed, whether its geopolitics, top-line growth, technology disruption, or investor focus. Management teams, as a function of COVID, are focused on operating resilience and supply chain consistency. Site due diligence will require creativity—live streaming by one or two buyer representatives and watched by the larger team remotely.
  • Two types of M&A transactions—the offensive and the defensive. Defensive transactions will be focused on vertical integration and supply chain (i.e., tying regional revenue to regional supply chains). Offensive transactions will occur in sectors offering public companies significant expansion opportunities as well as by companies that are in a position to be able to opportunistically take advantage of the moment.
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Author

Christopher P. Keefe

Partner

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Philip B. Taub

Partner

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