Impact of COVID-19 on Middle-Market Private Placement and M&A Activity

3D illustration of coronavirus COVID-2019 in microscope

In this update we offer some early observations of the COVID-induced slowdown of the economy generally and of the M&A and private placement markets in particular—and how this affects our clients and other companies considering strategic alternatives.

For a PDF download of this Client Update, click here.


The M&A and private placement markets are currently stalled because of general uncertainty, the dramatic drop in consumer demand, and retreating business valuations. It is still too soon to predict when and how quickly we can get back to normal. Regarding a likely recession, the press has reported the views of many top financial leaders and economists. (See sidebar discussion on the next page.)

Timing of a recovery may be impossible to predict, but the key accelerators will be (1) positive social response to mandated public health measures to contain and eliminate the virus and (2) the effectiveness of monetary and fiscal actions of governments to offset the staggering economic impact of those measures.

If the pandemic is quickly abated, the economy should recover quickly—mainly because the slowdown is caused by mandated measures to slow the pandemic and not systemic economic failures. Consumer confidence in the economy should rapidly return and already strong businesses with cash reserves and access to liquidity should quickly recover. If the pandemic drags on and economic activity does not resume soon, the recovery and its velocity will be uncertain.

Meanwhile, business owners and managers should identify and address any weaknesses in their business operations, especially those exposed in this crisis.

Trying to Catch a Falling Knife

The M&A and private placement markets are tied to the globally integrated economy at large, and so depend for their vitality and valuation on high confidence, consumer demand, and commercial and industrial economic activity.

Negative Factors


The markets are swinging wildly in this unprecedented situation. We have all watched the market set two records in less than a month: the first, peaking at 29,551 on February 12th and the second, plummeting to bear market territory twenty days later—sadly, a Dow record.

Behavior of the private markets is highly correlated to behavior of the public stock markets. The precipitous declines and volatility of the stock market indicate enormous uncertainty about the economy and imply corresponding deterioration of private-market confidence and valuations.

Sudden drop in consumer activity

Of course, the sudden drop in consumer economic activity, which makes up about 70% of total GDP, together with uncertainty of when that activity will return, have dramatically affected the public and private markets.

Consumer spending has slowed, with people forced to stay at home, loss of jobs, and the absence of discretionary income. This loss of spending affects every other part of national and global economic activity.

Are we in a recession? If so, for how long?

With the end of the pandemic not yet in sight, we are likely at the front end of a recession.

Federal Reserve Chairman Powell has said “we may be in a recession.” He promised that the Fed has more ammo to help—beyond bond purchases and the historic slashing of interest rates. This would include exercising emergency lending power to banks to maintain business lending. Powell has also voiced his opinion that once COVID-19 is under control, the economy will continue its strong growth.

Similarly, IMF Chairperson Kristalina Georgieva told CNBC that “the world is now in a recession and the length and depth of this recession depend on two things: containing the virus and having an effective, coordinated response to the crisis.” She expects the recession to be “as bad or worse than in 2009,” but expects a recovery in 2021, stating, “in fact there may be a sizable rebound, but only if we succeed with containing the virus—everywhere—and prevent liquidity problems from becoming a solvency issue.” She applauds the US $2.2 trillion relief package.

Global financial firms have also offered their best guesses about the length of a recession and timing or recovery, as reflected in the following chart. With some more conservative than others, they predict GDP will fall dramatically in the second quarter before the economy restarts and resumes growth in the third quarter. For example, Goldman Sachs’s forecast was revised on March 31 to reflect its prediction of a significant V recovery, if the virus is contained with an immediate, positive social response to public health mandates and monetary and fiscal policies being quickly implemented.

Data current as of 4/6/2020 pm

Drop in valuations

The stock market is one reference point for business valuation. For that reason, public-investor valuations can be predictive of private-company investor valuations. However, the laws of supply and demand are the same in both markets. Investors with capital will continue look for and invest in good deals for solid private companies, albeit at potentially lower valuations. Dollars will continue to chase quality.

Thus, the impact on a private business, which pre-crisis was ready for a sale or private placement, will depend on the quality of the company and its industry, as it may be amplified by its ability to maintain activity in the slowdown. Such companies include those that were already operating virtually or were quickly able to transition, as well as companies able to efficiently deliver products and services to their stay-at-home customers or companies doing the same.

Mitigating Factors

Government response

The potentially devastating social and economic impact of the pandemic can be mitigated by implementation of smart global government fiscal, monetary and public health policies.

Regarding monetary policy measures, the Federal Reserve has lowered interest rates to almost zero in an attempt to keep credit flowing and is buying government bonds to put money back into the system.

Regarding fiscal policy, the government enacted a historic relief package, the $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES Act), to keep businesses solvent while keeping employees at home. The CARES Act includes the Paycheck Protection Program (PPP), which provides for emergency SBA loans to small businesses—employers with 500 or fewer employees—to fund payroll, rent, utilities and mortgage interest.

For a copy of our Client Update on the PPP, click here.

Social response

Return to normal employment levels and consumer activity are objectives of the CARES Act, but these are, frankly, completely dependent on the social response and efforts to “flatten the curve.” The level of collective social cooperation will affect timing of the end of the pandemic and the beginning of the economic recovery.

Pandemics end

As dire as the situation looks in the US and elsewhere, pandemics eventually end, and can be shortened by more diligent individual and social response and by scientific discovery and development, as with recently announced progress toward promising vaccines.

Do past pandemics provide guidance?

This is a natural question. Our research revealed the critical importance of social cooperation (social distancing) and hygiene to containment and conclusion of a pandemic. The following paragraphs describe the unique features of past pandemics with approximate numbers for infection rates and deaths.

Spanish Flu of 1918

Worldwide Infections: 500,000,000 or 19.30% of the worldwide population

Worldwide Deaths: 50,000,000

US Deaths: 675,000

Historical Context: Populous cities (like Philadelphia) did not mandate social distancing until two weeks after the first reported cases. Rather than cancel a scheduled parade, Philadelphia allowed the Liberty Parade to take place, drawing over 200,000 people. Within one week, hospitals could not handle the number of infected and over 2,500 people died. By contrast, St. Louis took action within two days of the first reported cases, forcing social distancing by shutting down schools, churches, dance and pool halls, and theaters. Citizens were instructed to wash hands, to wear masks, and to clean surfaces. On a per capita basis, St. Louis had an eighth the number of deaths compared to Philadelphia.

Economic Impact: The stock market was up significantly during the Spanish Flu, but that was attributed to the ending of World War I and the euphoria of the time. Compared to today, the levels of market participation, global travel, commerce, and the ubiquity and speed of information dissemination were dramatically lower.

Asian Flu 1957-58

Worldwide Infections: 500,000,000

Worldwide Deaths: 1,100,000

US Deaths:  approximately 116,000

Historical Context: The US was in a recession from August 1957 to April 1958, but the recession was attributed to the Fed’s contractionary monetary policy to control inflation.

Economic Impact: Estimated to have reduced total GDP by approximately one percent during the recession. During the same period, the stock market was up approximately 17%.

Hong Kong Flu 1968-69

Worldwide Deaths: 1,000,000

US Deaths: 100,000

Economic Impact: The Dow lost about 13.5% during the pandemic; at its lowest point, it was down 21%.

Swine Flu 2009

Worldwide Infections: 1,400,000,000 or 20% of the worldwide population

Worldwide Deaths: 575,000

US Deaths: 12,500

Historical Context: Given its recency, it is interesting to note that social distancing worked when implemented, although when children returned to school in the fall, there was a second wave of infections in the US.

Economic Impact: The stock market during the Swine Flu Pandemic was viewed as under-valued after the mortgage crisis, so investors took advantage. As a result, the market rose approximately 40% during the pandemic.

COVID-19 2020

How do you explain today’s stock market?

We believe a number of unique factors are affecting today’s market, including:

  • Fears of impending recession were in the market before the crisis, coming at the tail of the longest bull run in the history of the Dow.
  • There are have also been a number of measures that made investors wary, including:
    • Robert Shiller’s CAPE ratio (a cycle-adjusted price-to-earnings ratio) being well above historical average;
    • Public debt to GDP being at historical highs, growing from about 65% of GDP in mid-2008 to over 100% in 4Q2019, among other ratios and metrics.
    • A black swan event—the virus—played into investors’ fears, resulting in the fastest fall from a record high to bear market territory in the history of the market;
  • The rapid infection rate across the globe together with today’s ubiquitous and rapid dissemination of information showing cities shut down, businesses closed, countries in lockdown, travel restricted, hospitals overflowing, and a chilling death toll; and
  • Conflicting government information on impact and response.

Our Observations and Recommendations

Investment activity has slowed because of uncertainty and employees being shut in.  As the models of the pandemic become more accurate and the end better defined, normal investment activity should resume quickly. Meanwhile, deals will still get done, albeit at a slower pace. Private equity and venture capital firms still have capital to invest; strategic buyers still seek to innovate and grow quickly.

As always, deals will get done with quality companies with solid management teams, strong operational and financial controls, quality of earnings, and revenue growth. Companies negatively impacted by the crisis, with less experienced leadership and inadequate operational controls will have a more difficult time with a sale or capital raise, or they will be acquired or recapitalized at depressed values.

We expect due diligence to be more rigorous now and in the future, especially taking into account the lingering effects of the pandemic—for example, the financial condition of suppliers, distributors and customers will be especially relevant.

Business continuity plans, Work from Home (WFH) policies, contingency plans, insurance, and other risk mitigants will become critical in analyzing the strength and attractiveness of a company to buyers and investors.

We expect to see more attention given to material adverse change (MAC) provisions in documents and to earn-outs based on future performance.

Business owners and management teams should identify and address any weaknesses in business operations, especially those exposed in this crisis.

Finally, business owners and managements teams should take advantage of the enhanced SBA loan programs, particularly PPP loans to cover payroll, rent, utilities, and mortgage interest during the crisis.


These are unprecedented times. It is clear that work stoppages, historic levels of unemployment, plummeting consumer spending, and a dramatic multi-trillion dollar fall in global equity market valuations have negatively impacted the middle-market M&A and private placements markets.

Although the pace of deal activity has slowed, good deals with quality companies will still get done.  At the same time, there is bound to be an uptick in acquisitions of distressed companies.  For now, it is impossible to predict when things will return to normal.

However, the depth and breadth of the slowdown will depend on more than government response and the speed of developing a vaccine.  It will depend on the social response and require collective and individual adherence to health care guidelines.  All of us have ownership in the solution.


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Contact Us

Galena Capital Partners Inc.
800 West Main Street, Suite 1460
Boise, Idaho 83702
(208) 853-5200

Jerry Sturgill

Bill Benjamin

Juan Carlos Duque

Jeff Anthony

Juan Carlos Duque

Managing Director

Juan Carlos has held diverse executive roles in various industries during his 25+ year career:

  • Chief Executive Officer. Former CEO of Gina Cucina, a Colorado-based food CPG startup, and former
    President of Atlantica Hotels, the largest privately held hotel management company in South America, based
    in Sao Paulo, Brazil.
  • Family office investor. Former Vice President of The Pritzker Organization, a large family office, based in
    Chicago, Illinois.
  • Private equity investor. Former investment team member of Darby Emerging Markets Fund, the first dedicated Latin America private equity fund, based in Washington, D.C.

Juan Carlos’s community service in Boise includes serving as past vice chair of the board of trustees and chair of the search committee for Riverstone International School. He is also a past trustee of North Shore Congregation Israel in Chicago. Juan Carlos holds a BSE from Wharton (University of Pennsylvania) and pursued a doctoral program in finance at Fuqua (Duke University). He lives with his family in Boise, where he enjoys snowboarding, reading history and science fiction, and hiking in the Boise foothills with his dogs.

Bill Benjamin

Managing Partner

Bill’s professional experience includes holding prominent leadership positions within both large and small companies, as well as serving on various industry and community boards:

  • Investment banker. Former Managing Director in the technology investment banking group at Piper Jaffray.
  • Wealth management. Former Managing Director and member of the Private Client Group Operating Committee at Piper Jaffray, Minneapolis. Head of Branch Strategic Development at UBS.
  • Chief Executive Officer. Former CEO of US Bancorp Investments, the Broker-Dealer and RIA of US Bank, and of Covr Financial Technologies, an InsureTech company.

Bill’s involvement on industry and community boards includes past vice chair of the Insured Retirement Institute, as well as past member of the ABASA board and the SIFMA Private Client Committee, Washington, D.C. He is also the former president of the Edina Baseball Association. Bill has an undergraduate degree in Mathematics and Economics from St. Olaf College and an MBA from the Carlson School (University of Minnesota). He enjoys the outdoors as an avid cyclist, skier, backpacker, and wildlife photographer.

Jerry Sturgill

Managing Partner

Jerry’s professional experience includes having been a business owner, a chief executive officer, an investor, an investment banker, and a Wall Street corporate attorney:

  • Investment banker. Managing Director of Capstone Headwaters, one of the leading middle-market investment banks headquartered in the United States, and co-founder of Outlook Capital Corporation, a registered investment bank.
  • Lawyer. Former corporate partner of Latham & Watkins, New York City, and Stoel Rives LLP, Boise, Idaho.
  • Chief Executive Officer. Former CEO of a regional security company with operations in ten Western states.

Jerry is the former board chair of the Riverstone International School, board member of the Idaho Conservation League, and board member of the Interfaith Sanctuary, one of the principal homeless shelters in Idaho. In 2016, Jerry was nominated to run for the United States Senate. He is also an avid outdoorsman, as a former licensed whitewater guide on the legendary Idaho Middle Fork, Main Salmon and Selway rivers, a skier, and a cyclist. Jerry earned his undergraduate and law degrees from Brigham Young University.

Jeff Anthony

Managing Director

Jeff’s professional experience includes extensive work with high growth businesses as co-founder, Chief Executive Officer, investment banker, and institutional investor:

  • Investment Banker.  Founder and former Managing Director of Corporate Finance Resources, a Seattle based middle-market investment bank and co-founder and former Managing Director of MALPAT Capital, a full-service broker/dealer and investment bank in Stamford, Connecticut.
  • Chief Executive Officer.  Co-founder and former CEO of SAFLINK Corporation, a publicly traded network security software company providing biometric identification solutions for government, enterprise, and Internet applications.
  • Fund Manager.  Co-founder and former Managing Director of Mallory Patterson Capital Management, a private equity and hedge fund of funds, and Shinnecock Capital, the Forstmann family office portfolio of value-added investments in high growth public and private companies.

Jeff co-founded and led the Washington Hunter Jumper Foundation, a 501c3 public charity providing educational programs and scholarships to expand and promote equestrian sport in the Northwest.  An avid outdoorsman, Jeff and his wife enjoy hiking, boating, golfing, and living the Idaho lifestyle at their home on Lake Coeur D’Alene.  Jeff earned his undergraduate degree from Vassar College.