In its latest industry update, the San Francisco-based firm said: "COVID may also prove to be an unexpected catalyst of M&A activity, driving further industry consolidation, buyers looking for deals, and sellers deciding now is the time to get their equity off the table."
2020 Environmental suggests considering the following factors for companies planning on selling or buying in 2020:
- Sellers should use this pause to prepare your M&A strategy. Make time your ally, and with the current lull, this is a great time for sellers to understand your value proposition and prepare a go-to-market strategy to take advantage of new M&A activity picking up by mid-year
- COVID may not have an impact on M&A valuations. Every company in our industry will be impacted by COVID, buyers and sellers alike. How the company performs over the next nine months will be key to your market valuation. Keep good records of any decline in revenues and profits due to COVID restrictions to support a valuation adjustment. And build a strong forecast showing how your company will rebound in 2021
- Buy-side M&A deals in weak economies create shareholder value. History shows that M&A buyers who take advantage of the economic environment can position the business to exceed industry-average growth once the economy recovers, creating real shareholder value
- Get expert advice on your M&A strategies and plans, including ways to protect and maximise your company’s valuation
John Cowdery, CEO of Cascade Environmental, agrees with 2020 Environmental Group's key recommendations, commenting: "All COVID-19 related financial impacts should be tracked so that they can be viewed as a one-time force majeure type issue. How companies perform coming out of the downturn will be critical to show that they are resilient to this type of market impact."
The update also references the V-shaped recession as predicted by many economic commentators such as Goldman Sachs Group. This, 2020 Environmental Group asserts, is translating to the broad expectation of a rebound by Q4 or Q1 2021 among many environmental service firms. Some are saying that although their workload remains fairly solid right now they might expect to see decline later the year as some new projects are cancelled or delayed.
Al Spiers, CEO of 2020 Environmental Group, told Environment Analyst: "Some companies are reporting their private sector work solid (with the exception of oil & gas) but are anticipating public sector (local, state agency) projects to be impacted since these are the entities who are being hit by their government budgets diverted to COVID and new revenues impacted by declining local tax revenues (from local businesses shut down).
"As such, they are anticipating some public sector projects like infrastructure to be delayed. Which points to the reasons for the new US Federal Infrastructure Budget currently being discussed in Congress. Interestingly, in past recessionary downturns, it has always been private sector that declined first, with public sector declining a year or two later. This time, it could be the opposite."