Normalizing EBITDA: Results of the COVID-19 Impact

There are many components to any business that might be significantly impacted, up or down, in the wake of COVID-19. Financial statements, and in particular, specific revenue and operational expense categories, might need general ledger or separate off-line tracking (or segregation), to build greater clarity.

These categories might include, but are not limited to:

REVENUE

• Loss of revenue from customers specific to the “Safer at Home” restrictions and resulting effect on business
• Loss of revenues related to proactive production modifications and split shifts to manage social distancing and other health protection matters
• Surges in revenue not considered normal demand or seasonal cycles related to all aspects of COVID-19 relief efforts

Costs of Goods Sold (COGS)

• Surges or irregular ordering patterns in COGS due to scarcity of supply or price increases related to supply
• Surges in transportation costs as a result of expedited freight to support abnormal demand
• Inventory write-offs in relation to changes in customer ordering patterns
• Run rate changes on part-time or temporary workers to support demand or displaced “at home” or “COVID-19 infected” employees
• An unusual spending rate on subcontract production or transportation services if current internal capacity is overloaded or “out of service” due to COVID-19 impacts

Selling, General and Administrative (SG&A)

• A more significant spend on legal or accounting and IT/IS services to help navigate the various COVID-19 workplace and CARES Act transactions…over and above normal run rates for professional services
• A lesser spend on salaries as leadership reduces their wages during the term of the COVID-19 impact
• Costs related to providing IT software and hardware to accelerate a “work at home” capability
• Maintenance, repair and operations (MRO) cost increases in the areas of employee well-being and workplace cleanliness, such as sanitizers
• Overtime for production workers in the event ramping up to support order increases relative to the unusual supply chain demands
• Retraining and physical plant tooling expenses to reconfigure areas to support personal protective equipment (PPE) supply chain partnerships
• A general category of “loss of productivity” due to the fragmented work schedules to accommodate the availability of the workforce and the need to social distance
• Losses from unused travel, sponsorship, tradeshows, meetings, etc.
• Rebates from insurance carriers on the cost related to auto and truck policies
• Income derived from forgiveness of PPP Loans
• Any increased bad debt expenses related to customers’ payment or lack thereof                   

This is certainly an unprecedented time, which gives us the opportunity to be creative and demonstrate the flexibility of our businesses, and capability of our management teams. How you respond to this crisis, and the ability to support the impact and any changes made to the business in response to COVID-19, will be a factor in the ultimate sale of your business. To help navigate the challenges and unique opportunities arising from COVID-19, we’re working alongside business owners on a longer-term basis to prepare their businesses for sale and analyze the impact of COVID-19 with no added cost of our services.

Taureau Group Overview

Taureau Group is an independent boutique investment bank providing merger and acquisition services to lower middle-market companies throughout the world. Principals of Taureau Group have successfully completed hundreds of M&A transactions for a wide array of clients in virtually every industry. Transactions typically involve closely-held and family-owned businesses, and private equity firms with transaction values ranging from $10 million to $150 million. Taureau Group combines the capabilities of large, bulge-bracket investment banks with the service and responsiveness of the middle-market.

For a more robust list, please contact any of our experienced M&A professionals here. Our team is ready to discuss how COVID-19 may impact your M&A strategy.