Seeing The Light (CONT’D FROM PAGE 18)
was the Internal Revenue Service’s Employee Retention Credit (ERC) program, which applied to qualified wages paid from March 2020 through September 2021. For some firms, PPP and ERC credits were a way to smooth a temporary rough patch, but for others, it was a life preserver that is no longer there to keep them afloat. It is doubtful, however, that some of them could have stayed the course very much longer even if the financing had con- tinued. Legacy shops like these typically have not invested in new technologies or in Internet-enabled solutions for keeping their customers close. They compete, for the most part, in commoditized markets. Most of their remain- ing value consists of the books of business they have car- ried for years – an asset that PPP stimulus has kept them from properly capitalizing on. This is because their PPP life preservers have let them put off taking their opportunities to be acquired in tuck-ins, the type of transaction in which the buyer’s principal inter- est is in acquiring the seller’s active sales accounts. Plant, equipment, and personnel may or may not be part of the deal. For a legacy firm that is not likely to be acquired as a going concern, a tuck-in is often the wisest and most re- warding exit strategy – certainly preferable to closure and liquidation, which could be the only other option. With no more PPP to tread water on, many of these firms will have no choice but to come to market as tuck-
aging for COVID-19 test kits and by using its dye sublima- tion equipment to custom-decorate protective masks. But, stories like this one were exceptions, and on the whole, more firms suffered than thrived as the pandemic took hold. At this point, we think it is safe to say that the worst of the business contractions are over and that most seg- ments of the industry should start to see activity returning to pre-pandemic levels. That will be good news for M&As as firms rebuild their sales, bottom lines, and valuations, becoming more desirable to buyers as a result. But, the rebound will be uneven, with companies in some segments (for example, packaging) showing more vigor than those in others (general commercial printing). Another distinction that the recovery will highlight is the gap between firms that survived the pandemic using their own resources and those that would not have made it We are referring to cash infusions from the federal gov- ernment’s Paycheck Protection Program (PPP), first signed into law in March 2020. This provided employers with up to three rounds of financing, in the form of forgivable loans, in return for maintaining their headcounts. PPP offi- cially ended on May 31, 2021, ending applications for loans under the program. Another temporary source of financing through without life support. Stimulus, but Not Salvation
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20 April 18, 2022
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