June 1st, 2021
As the ETA community gets ready for a second summer since the onset of the COVID-19 pandemic, we wanted to share a few observations and thank-yous.
Video vs. In-Person
One of the key changes over the past year in the search process has been, of course, that more and more interaction with potential sellers now takes place over video meetings. While there is an obvious upside here – less travel and more efficient time management during a search – the equally clear downside is the challenge of making the same human connection through Teams or Zoom that searchers normally make in person. In the last month, we have seen in-person meetings with potential sellers start to come back in force, as vaccination rates increase (and probably as people are just ‘ready’). Often, these meetings are preceded by a delicate discussion of what each party is comfortable with; nevertheless, the upside of getting this right, and perhaps being the first to meet in person with a business owner since early 2020, is significant.
Still, video calls are here to stay as part of the process, and more sellers are more comfortable getting on a Zoom call than was the case 16 months ago. This is still a better opportunity to make a real connection than an audio-only call, but we continue to see a significant variance in the sophistication with which searchers are conducting video calls. In 2019, a laptop camera and microphone, ‘just okay’ bandwidth, poor lighting, and no background might have been okay – no longer! The cost of one flight to see a potential seller easily pays for a great webcam and speakerphone, with some left over for a nice pineapple for the shelf in the background.
We continue to see a high volume of deals, many at high, and sometimes very high, valuations. In many cases, it is now possible to more confidently understand the COVID-19 impact on a business going forward, and in some cases, it does seem as though the pandemic has hastened sellers’ transition plans. We continue to focus on a disciplined approach to valuation, particularly for software. A key factor in deals through the end of 2021 is likely to be any increase in the federal tax rate for capital gains, and whether it is imposed retroactively for 2021 or takes effect at the end of the year.
In late 2020, we were pleased to sign the first enterprise agreement in ETA with Grata, a private company search engine. We believe Grata will continue to be an important part of the search tech stack and have appreciated the engagement and collaboration with the Grata team as they continue to build out features and functionality important for the ETA community.
Operations – a tight talent market
The most common challenge we hear from CEOs is around hiring, which seems to be ‘hard’ or ‘really hard’ with almost no geography or job family providing much relief. CEOs are responding to this challenge in two ways: first, you don’t have to hire the talent you retain, and a focus on great internal talent management, often with advice from our operating executive Kristen Glenn, can help buffer the impact of increased mobility and upward salary pressure. Second, companies have to up their recruiting game, and we continue to appreciate the support of Jennie Ellis and her team, who have stepped into the internal recruiting function at a number of our companies.
Getting through it
Most importantly, to the TSP-backed search entrepreneurs who have worked so hard during this challenging period to find and purchase a small business – thank you for your efforts! Your drive, creativity, and resilience are an ongoing source of inspiration, and we’re so pleased to be on this journey with you. It’s a great time to be in search!
Mitch, Cregg, Scott, Aaron, Saumil, & Erin