18^th March 2021

On occasion, I have been accused of having a “keen grasp of the obvious”.  I will enhance that perception by stating that every aspect of our lives (personal, family, community, and business) has been in some regard negatively impacted during the COVID pandemic.

Amidst the economic challenges and market hardships that have been particularly experienced by many businesses, we have witnessed several sectors/areas that have been less impacted or unanticipatedly benefitted from these unwanted circumstances.

I will share several examples of these scenarios where we were able to assist clients in successfully completing a sale transaction despite persistent economic headwinds.

Surprise 1 – Residential Housing

We were engaged to sell a company that fabricated custom granite, quartz, and stone countertops for high-end kitchen installation.  Almost half of their business was through a “Big Box” retail channel.  We had marketed the business in late 2019 and identified interested buyers for a possible March 2020 closing, which unfortunately was put on “hold” due to the economic downturn caused by the pandemic.  We anticipated, like in prior recessions, that the residential construction and building supply sector would slow down too.  We remained in contact with our client to monitor their progress during the initial months of the pandemic.  We were pleasantly surprised to learn that our client had their highest sales volume April, May, and June in their history!  We remained in touch with prospective buyers and consummated the sale transaction in the Fall of 2020.

We wondered why this sector had not experienced the downturns of past recessions.  Discussions with our client during the late Spring and early Summer of 2020, and subsequent conversations with other clients and similar industry insiders was revealing.  The conclusion reached was that since so many people had been required to work at home during the early days of the pandemic, many homeowners were sitting in their kitchens and dining rooms trying to adapt.  They surmised that many homeworkers were thinking that since they were going to be stuck working at home for the foreseeable future, had been saving money formerly spent on commuting costs, were likely saving money by not going on vacation in 2020, they might as well renovate or spruce up their kitchens.  Therein steps our client and any other businesses supporting residential housing (bathrooms, HVAC, roofing, generators, etc.).  All are experiencing strong results during the pandemic.  This thesis is easily validated by anyone who has tried in the latter half of 2020 to schedule time with a residential building contractor!

This sector may continue to remain robust even after the pandemic as some housing experts see an increase in people leaving densely populated cities and moving towards more single-family and socially distanced housing options.

Surprise 2 – Telehealth

A second area of surprise emerged during our sale engagement of a mental/behavioral healthcare related company.

For investors, healthcare is often viewed as a relative safe haven during an economic downturn. Not so when that downturn is the result of a once-in-a-century pandemic. A combination of government edicts, patient fears, and intentional efforts to preserve critical resources resulted in plummeting volumes in most sectors.

For behavioral healthcare however, increasing rates of anxiety and depression related to the pandemic drove up demand for mental health services. Providers like our client, quickly adapted to using telemedicine to meet patient needs, improving profitability when so many other sectors struggled.

The longer the pandemic lingers into 2021, the more experts believe a mental and  emotional toll will continue to increase for people of all ages (remote learning students/parents, isolated elderly, unemployed individuals, etc.).  These problems may be exacerbated by greater drug and alcohol use (alcohol sales in many areas are at all-time highs).  The behavioral health subsector (and particularly telehealth) remains a growing, attractive, and resilient business provider in a still tumultuous healthcare world.

Surprise 3 – E-commerce Food & Beverage

The early days of the pandemic saw some unusual instances of panic buying and stockpiling (i.e. empty toilet paper and cleaning wipes on grocery store shelves).  These behaviors were amplified by supply-chain disruptions from international and domestic channels affected by inventory production catch-up and pandemic influenced labor shortages.  Grocery stores and Amazon have filled the consumer grocery void while restaurants, although trying to adapt, have overall suffered incredibly from varying lockdown provisions.  Back to my grasp of the obvious, this is certainly a business sector in flux.

A specific area where we have seen a resilient response to the pandemic involves e-commerce food and beverage distribution and manufacturing companies.  With more people sheltering in place during lockdowns and working remotely, home meal preparation has greatly increased during the pandemic (some experts estimate it has doubled).  Consequently, meals and beverages people were used to consuming at restaurants or outside the home are now being prepared and consumed at home.  On-line grocery shopping has come of age!

EdgePoint is currently working with an e-commerce company in the alcoholic beverage category that specializes in direct-to-consumer delivery.  The business was experiencing steady growth prior to the pandemic but has seen accelerated growth beyond pre-pandemic forecasted levels. This growth correlates to the increased alcohol consumption mentioned above and in addition to the large batch brewers and distillers is also benefitting many of the craft brewers and specialty spirits distillers.  It is not anticipated that this trend will abate until the pandemic recedes and is creating new consumers for products that may not have been previously considered.  Financial and strategic investors have taken notice and we are seeing increased interest in this segment.

There is still much to be settled in the food and beverage space when the pandemic recedes but suffice to say the resiliency and adaptations that have already occurred, will be felt for the foreseeable future.

Conclusion

It is too soon to tell what the world will look like at the end of the pandemic or exactly when it will end.  One thing we can say with certainty is that we will see many industries negatively and positively impacted by the pandemic, and more surprises to the story are yet to be revealed.

As the examples above illustrate, there are already business sectors that have surprisingly excelled and buyers/investors that remain highly interested in looking at these opportunities.

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