ACG Charlotte recently hosted a virtual case study discussion featuring two DHG partners, Jay Stine and Steven Frank. Both Transaction Advisory leaders shared real-life examples and insightful strategies for successfully navigating COVID-19-related adjustments in today’s M&A landscape. In case you missed the event, included below is a brief recap along with a recording of the 45-minute conversation.
One Size Does Not Fit All
According to DHG, there is significant variability for both positive and negative adjustments in the current market. Each transaction differs depending on the industry, buy-side and sell-side approach and deal dynamics.
“EBITDAC” (Earnings Before Interest, Taxes, Depreciation, Amortization, and Coronavirus).
Understanding, analyzing and quantifying the COVID-19 effect on a company’s operations and earnings involves strong industry knowledge and an element of judgement. Normalizing a company’s reported EBITDA for the impact of COVID-19, now known as “EBITDAC,” involves a line-by-line review of add-backs and deductions. The type of adjustment can span different categories and be one-time or pro forma in nature, which can result in various presentations of adjusted EBITDA in the market. To present a stabilized view of ongoing financial performance, both subjective and analytical determinations are made regarding revenue uplifts and losses as well as cost savings and increases. Some adjustments may be harder to isolate and negotiate than others, resulting in detailed product and customer analyses as well as different sensitivity analyses.
Examples of potential COVID-19 adjustments may include:
- Lost revenue and margin
- Revenue and margin uplift in industries positively impacted
- Fluctuations in personnel expenses and professional services
- One-time expenses for personal protective equipment (PPE), safety and sanitary supplies
- Supply chain disruptions
- Cost savings associated with reduced travel
- Expense reductions tied to marketing, sponsorships and office supplies
- Rent deferrals, abatements and lease abandonment
- Vendor rebates and allowances
- Increased costs needed for remote working
- Potential debt-like items due to deferred payroll taxes or federal funding received (Paycheck Protection Program (PPP) loans)
Access the full discussion to hear more about prepping for a sale, working capital pegs and specific case studies involving the following sectors: e-commerce, fintech, franchising, manufacturing, physician practices, professional services, retailers, restaurants and software.
Full discussion (Passcode: $7AVrC0R)