COVID-19 BUSINESS RESOURCES (SPONSORED)
Business has long been compared to Darwin's theory of evolution and "survival of the fittest.” This could not be more true in the face of a global economic recession. When business will return to "normal" is anyone's guess right now, and what will “normal" even look like? What we (H&S) believe to be a certainty, however, is that Darwin’s theory – “survival of the fittest" - will prevail.
- There will be businesses that are able to "weather the storm” and will be looking to expand, likely via mergers and acquisitions.
- Other businesses will be hit harder. In this case, they may face the tough decision of closing, selling or merging their business.
- New businesses will emerge to fill the void.
So what if you are one of the businesses to survive this ordeal? Would this prove the opportune time to expand via merger or acquisition? History has proven that opportunities will likely abound and now is the time to begin thinking and planning accordingly, after all, "chance favors the prepared mind" (Louis Pasteur).
Many may wonder as to how to afford expansion. During this time of an uncertain “normal” it is important to keep in mind a large stash of cash is not always a necessity when it comes to acquisitions if you are willing to finance either additional debt or give up some equity. Working capital, however, would be necessary at a minimum to cover transactional and transitional costs.
All well and good you might be saying, but how specifically might one take advantage of new legislation like the CARES Act to add to one's leverage with an acquisition opportunity?
Presumably, an acquisition or merger candidate would be a business that, for whatever reason, was unable to utilize or chose not to receive a Paycheck Protection Program (PPP) loan. They may, however, be eligible for Employee Retention Tax Credits (ERTC). If so, as the acquirer, you may be able to take advantage and significantly reduce your future payroll costs of the acquired entity, possibly all the way through the end of the year (12/31/20). You can learn more about the PPP and ERTC by visiting our website at hscompanies.com.
Perhaps your business was able to secure a PPP loan, could you still utilize the ERTC with regards to the acquired company since PPP loans and the ERTC are mutually exclusive of each other? There, of course, is no authoritative guidance at this early stage, but it doesn't take an Einstein to imagine that well-structured and timed legal agreements could be put in place to assure an adequate separation of entities till 1/1/21 in order to be in compliance. Our advice: seek quality legal counsel for any such transactions. Actually, quality legal counsel is always good advice!
Now that Congress has added more funding to the PPP and EIDL programs, one could also imagine other scenarios playing out with regards to the usage of these funds to support operations of the acquired company and, thereby, minimize the transactional, transitioning, and initial operating costs of the acquired entity.
We do hope, of course, that companies may be afforded a "second life" with this second round of stimulus. The question of continuing operations, or merging/being acquired is obviously a difficult decision. The most important point to keep in mind: "check your ego at the door and make sure the decision is based on what is best for owners, employees and your customers."
"When written in Chinese, the word 'crisis' is composed of two characters. One represents danger and the other represents opportunity" John F. Kennedy
We at H&S Companies understand and empathize with the struggles businesses are going through right now, but believe opportunities will be there for those able to both "weather the storm" and see the possibilities before them!