Coming Soon in Textile Services: Post-COVID M&A Trends
The pandemic that took hold in March 2020 is now rapidly waning, but its lingering impacts continue to affect the linen, uniform and facility services industry, including company mergers and acquisitions (M&As), according to a forthcoming article by a leading M&A consultant writing in Textile Services magazine.
Jim Gutheim, a consultant who for many years has advised both buyers and sellers of companies in the textile services market, writes about how COVID-19 has affected M&As in the post-pandemic environment of early 2023.
In his article titled, “M&As: Post-Covid Pros and Cons: Despite Operational Challenges, Selling Prices Are Up,” Gutheim notes that while rising interest rates have made financing mergers more costly for midsize and smaller laundry operators, that trend hasn’t dissuaded the large chains from pursuing mergers. Smaller companies are still in the M&A game as well, he notes, but they’re being pickier about their choices. “The higher rates for borrowing have affected smaller independent laundries more than the chains,” Gutheim writes in the article tentatively slated for February’s issue. “The larger companies have ample resources, so it’s less of an issue for them. When the chains are looking to acquire a smaller laundry, a $10 million-$15 million purchase price is a relatively insignificant amount of money to them. Therefore, the rise in interest rates is having a minimal impact on merger-and-acquisition (M&A) activity. As for individual or regional group companies, the urge to merge continues in a slightly different fashion, he adds. “Smaller independent laundries, which have far fewer resources, will feel the increase far more when acquiring another company. That said, higher borrowing costs aren’t preventing them from pursuing acquisitions. We are finding that they are instead applying a more selective approach in how they choose to use their resources.”
Like other business activities, the decision to buy or sell a commercial laundry is influenced by various other Post-COVID trends including labor shortages, supply-chain bottlenecks and, in some cases, the psychological impact of having dealt with massive declines in business during the pandemic. This trend hit food-and-beverage (F&B) laundries particularly hard, he writes.
“Before COVID, many believed that they’d continue making the same amount of money every year for the next 5–10 years,” Gutheim writes. “Or if business went well, they’d make more over that time frame. Post-COVID, many owners now recognize that nothing is guaranteed. Just because they’ve grown 5% a year for the last few years doesn’t mean that’s always going to happen. They now have a better understanding that there could be another unforeseen event such as a pandemic, hurricane, flood, fire, etc., that could once again wipe out huge swaths of business. For many owners, this is a frightening thought. That’s especially true if – like most independents – the majority of their ‘eggs’ (i.e., their financial future) are held in one, now seemingly precarious, basket.”
Click here for a sneak preview of the full article.