As we approach the mid-point of 2021, it’s fair to ask whether we have finally emerged from the Covid-Cloud. Is the world finally able to put the Pandemic in the rearview mirror and forge ahead now in some semblance of what we were used to before we were forced to quarantine? Are we there yet?
Certainly, with respect to schools, religious assemblages, sporting events and hospitality venues, the signs are everywhere that we are emerging from our bunkers and resuming something close to what we were used to before we shut ourselves in. But what about the business world and economic activity? Have they normalized?
The answer depends on which businesses and what industries you are looking at because Covid impacted the economy unevenly. Although across the board the number of active business owners dropped by over 22% in the first quarter of last year – the largest drop on record – some industries actually thrived last year (consumer goods and home improvement) while others declined sharply (leisure and hospitality). Government stimulus checks greatly helped the first group, while SBA-supported PPP and EIDL loans provided life support to the other.
At this mid-point of the current year, these disparities in Covid impact are still being felt. For example, even though New York and other states removed almost all operating restrictions on restaurant operations as of June 1st, the customer base for these establishments has been slow in returning, especially the case for restaurants in inner cities that rely on the luncheon trade of business people and office workers who are still working remotely. Moreover, those same businesses that were forced to furlough workers last year are now finding it difficult to replace their staff.
For those businesses which actually experienced a decent year in 2020, many are now wrestling with forecasting inventory and with supply issues: was last year’s sales a one-time Covid blip or a reliable indicator of future sales? Could optimistic ordering lead to overstocking; or could overly conservative purchasing lead to empty shelves? (See the front-page article in the June 1, 2021 edition of The New York Times entitled: “Why the World Has Run Short of Everything”).
Although it is encouraging to note that merger and acquisition activity currently is strong, buyers are asking sellers a similar question: was your company’s sales last year indicative of real growth or merely a reflection of a Covid-related distortion. Buyers are adding an extra layer of due diligence regarding quality of earnings to avoid overpaying in the aftermath of the pandemic that, at least as of now, is depressing current M&A valuations and resulting in more earn-out scenarios.
So, are we there yet? The answer, I think, is almost, but not quite. The signs are encouraging. A report issued in May by McKinsey & Company stated that in a global survey of business leaders, 73% of those responding said they believe business conditions will improve in the next six months. That’s a high level of optimism. I think that the optimism is warranted, and that business and the economy will be in full stride by the first quarter of 2022.
That’s my personal view, based in part on discussions with my clients and business associates. I welcome calls from anyone else interested in sharing their views and experiences.
ABOUT STUART NEWMAN
Stuart B. Newman has been engaged in corporate and securities practice for over forty years, focusing on corporate law, private equity transactions, mergers and acquisitions, and capital formation through public offerings and private placements.
Stuart studies his clients’ businesses thoroughly and has made valuable contributions on a broad range of business topics such as joint ventures, product development, finance, investment banking, marketing, and personnel. He has served as a director on the boards of both publicly-traded and privately held companies, contributing his unique combination of business acumen and broad legal experience.
ABOUT OFFIT KURMAN
Offit Kurman, one of the fastest-growing, full-service law firms in the United States, serves dynamic businesses, individuals and families. With 15 offices and nearly 250 lawyers who counsel clients across more than 30 areas of practice, Offit Kurman helps maximize and protect business value and personal wealth by providing innovative and entrepreneurial counsel that focuses on clients’ business objectives, interests and goals. The firm is distinguished by the quality, breadth and global reach of its legal services and a unique operational structure that encourages a culture of collaboration. For more information, visit www.offitkurman.com.
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