Chesapeake Corporate Advisors, LLC

Invaluable Partners. Increasing Business Value.

Middle Market businesses adapt their

strategy in response to COVID-19

We have surveyed business owners and operators for insight as to how they are making adjustments to
their operational and capital strategies in times of uncertainty.

Key Themes in this report include: Collecting the Data

 Preparing for a New Normal…Business owners In order to compile this report, we have
adjust their strategy – as many prepare for a New reached out to over 200 owners and
operators of businesses in the middle
Normal
market. The final data and conclusions
 Bracing for Impact…Business owners are represent the completed survey
information from 59 respondents,
expecting heavy financial losses for calendar year
mostly in the Mid-Atlantic. The survey
2020 results were finalized on June 15,
 Containing Costs…Business owners examine 2020.
their financial plans as they look to cut costs We hope that you find the responses
both relevant and interesting as we all
 Timing the Market…Business owners share continue to navigate this new reality
changes to their M&A and liquidity timelines together.

 Creating Opportunity…Business owners find

opportunity despite times of uncertainty

Chesapeake Corporate Advisors (CCA) is an investment banking and corporate advisory firm located in Baltimore, Maryland.
 Preparing for a New Normal
Business owners adjust their strategy – as many prepare for a New Normal

At CCA it is critical for us to understand how the COVID-19 pandemic has impacted our clients,
and how we can provide insight and leadership as they navigate changing economic conditions.

Q: How has COVID-19 impacted your current business strategy?

 Adapting Quickly – It is not surprising to see that over

70% of the business owners surveyed have recognized 59.3%
the need to shift their current strategies due to the
COVID-19 pandemic. Most (59.3%) expect a slight shift
in strategy to be sufficient, while the remaining 10% are
considering a complete change to their plans.

 Doubling Down – It is interesting (but encouraging) to

see that almost a quarter of the survey participants are 23.7%
opting to “double down” on their current strategic
direction. These companies likely have a sound business
10.2%
model and confidence in their ability to remain 6.8%
competitive despite the global economic uncertainty.
Likewise, another 6.8% of the survey participants do not
intend to make any strategic adjustments. Our strategy A slight tact is No change to our We are doubling
requires a required strategy down on our
complete shift current direction

Q: When do you anticipate your industry to return to a pre-COVID-19 state?

14% Less than 6 Months

Preparing for a New Normal

36% 7 – 12 Months Many of the survey participants have been

preparing for a “New Normal”. As they develop
new plans, we would expect business owners
19% 12 – 24 Months and investors to continue to place higher
premiums on revenue and cash flow that is both
32% Planning for a New Normal sustainable and insulated from risk.

Chesapeake Corporate Advisors (CCA) is an investment banking and corporate advisory firm located in Baltimore, Maryland. 2
 Bracing for Impact
Business owners are expecting heavy financial losses for calendar year 2020

COVID-19 has had a significant financial impact on the middle market. Most businesses have been
affected negatively in terms of both revenue loss, unforeseen expenses and resulting losses in
profitability and cash flow.

Q: What impact will the COVID-19 pandemic have on company revenue in 2020?

COVID-19 Impact on Revenue % 71.2%

 Negative Impact Greater than 25% 11.9%

 Negative Impact between 0% and 25% 71.2%
 Positive Impact between 0% and 10% 8.5%
11.9% 8.5% 8.5%
 Positive Impact Greater than 10% 8.5%
100% Negative Negative Positive Positive
Impact Impact Impact Impact
Greater than between 0% between 0% Greater than
25% and 25% and 10% 10%

Q: What impact will the COVID-19 pandemic have on company earnings in 2020?

COVID-19 Impact on Earnings % 55.9%

 Negative Impact Greater than 25% 18.6%

 Negative Impact between 0% and 25% 55.9%
 Positive Impact between 0% and 10% 18.6% 18.6% 18.6%

 Positive Impact Greater than 10% 6.8% 6.8%

100% Negative Negative Positive Positive

Impact Impact Impact Impact
Greater than between 0% between 0% Greater than
25% and 25% and 10% 10%

Bracing for Impact

Over 70% of the survey participants are bracing for revenues up to 25% less than they had previously planned for, and an
additional 12% of the participants expect it could be even higher than 25%. Fortunately, it appears that some companies have
been able to make adjustments to mitigate substantial losses in cash flow.

Chesapeake Corporate Advisors (CCA) is an investment banking and corporate advisory firm located in Baltimore, Maryland. 3
 Containing Costs
Business owners examine their financial plans as they look to cut costs

For the businesses that have been affectively negatively by COVID-19, reviewing financial plans
and implementing a cost-management strategy is imperative.

Which of the following financial actions is your company considering as a result of

Q: COVID-19?

Cost containment strategy 70.18%

Postponing planned investments 57.89%

Restating financial plans and forecasts 54.39%

Reviewing your access to capital 29.82%

Changing M&A strategy 29.82%

If you have reduced costs, what cost containment strategies have you employed as
Q: a result of COVID-19?

Reducing overhead costs 89%

Employee layoffs 27%

Reduction of fringe benefits 24%

Containing Costs

Compensation reductions 20%

 Reducing Overhead – Nearly 90% of
the survey participants have used the
COVID-19 to reexamine their financial
Furloughs 9% plans and look for ways to reduce
overhead expenses. Many business
owners needed to reduce personnel
expenses.

Chesapeake Corporate Advisors (CCA) is an investment banking and corporate advisory firm located in Baltimore, Maryland. 4
 Timing the Market
Business owners share changes to their M&A and liquidity timelines

COVID-19 has created volatility and uncertainty in the capital markets, which are a leading
indicator for M&A transactions in the middle market.

Q: How is COVID-19 affecting your M&A strategy?

48.2%

M&A Indecision

28.6%  When it comes to making acquisitions, the cloud

of uncertainty remains. While nearly half of the
survey respondents do not intend to change
14.3% their M&A strategy, 29% report being unsure
8.9% given the current conditions. 14% plan to be
less aggressive, while 9% plan to seek
opportunities execute a more aggressive
strategy.
Plan to be less Unchanged at Unsure given Plan to be more
aggressive this point the conditions aggressive

If you've been considering a liquidity event in the next 12 months, has your timing
Q: changed?

68.00%

Cashing Out

 Despite the financial impact of COVID-19, 68%

of the survey participants who had been
considering a liquidity event have not needed to
change their plans for a future exit. 12% expect
a slight delay (less than 6 months), while the
12.00% remaining 20% are less optimistic in the short-
10.00% 10.00%
term.

No change Delayed by 3-6 Delayed by 6- Delayed by 1

months 12 months year or longer

Chesapeake Corporate Advisors (CCA) is an investment banking and corporate advisory firm located in Baltimore, Maryland. 5
 Creating Opportunity
Business owners find opportunity despite times of uncertainty

Q: Has COVID-19 provided opportunities for your business? % of survey

respondents

 Developing New Revenue Sources– The COVID-19 pandemic has put all business
models under a once-in-a-lifetime “stress test”. Over 52% of our survey respondents 52%
have been able to create opportunity by developing new sources of revenue.

 Restructuring Capital – Costs of capital are at historic lows, and banks and other
capital lenders are showing unprecedented flexibility. Nearly 14% of our survey 14%
respondents have used this time to restructure their balance sheets.

 Making Acquisitions – Companies with a strong balance sheet and a flexible growth
strategy see opportunity to make acquisitions amongst the uncertainty. For those with 12%
available capital and the appetite for risk, it is a “buyer’s market”.

 Transferring Ownership – The pullback in M&A activity and volatility in the capital
markets has lowered business valuations and created a favorable environment for 7%
ownership transfer and ownership continuity planning.

 None of the Above – Over 36% of our survey respondents have found other ways to
create opportunity that we had not listed. Anecdotally, we know that Companies are 36%
investing internally, using technology more effectively, creating new partnerships and
focusing on improving the customer experience (among others).

Creating Opportunity
While no one knows how long this COVID-19 situation will last, or what the “new normal” may look like, it is
encouraging to see that many businesses have been to create new opportunities and make the best out of very
difficult circumstances. It is times like these that we are reminded that the best strategic plans incorporate both
flexibility and fiscal responsibility.

Chesapeake Corporate Advisors (CCA) is an investment banking and corporate advisory firm located in Baltimore, Maryland. 6
Chesapeake Corporate Advisors, LLC
Invaluable Partners. Increasing Business Value.

Chesapeake Corporate Advisors (CCA) is a boutique corporate advisory firm that has been
successfully serving investor-owned and closely held emerging growth and middle market
companies since 2005.

Our firm was formed on the foundation that our clients are our top CCA Firm Overview
priority at all times.  Founded in 2005 by Charlie Maskell
At CCA, we use proprietary methodologies deeply rooted in experience,  Experienced Leadership
creativity, and comprehensive data analysis to deliver services in the three  Proprietary Methodologies
following areas:

 Strategy & Corporate Advisory Services– Chesapeake Corporate Corporate Advisory Services
Advisors provides a framework for business owners to focus on building
sustainable value and to explore their succession and exit alternatives. We  Evaluating Strategic Alternatives
use our proprietary tools and methodologies to assess the market and  Ownership Continuity & Exit Planning
maximize value through strategy.
 M&A and Capital Advisory
 Investment Banking Services – CCA is a leading investment bank with  Valuations & Financial Opinions
extensive expertise in mergers, acquisitions, divestitures, and corporate  Value Creation Strategy &
advisory. We use a comprehensive approach to assist clients develop and Implementation Services
execute a buy-side, sell-side or recapitalization strategy domestically and
in cross-border transactions. Investment Banking Services
 Business Valuations & Financial Opinions – At CCA, understanding  Sell-Side Representation
shareholder value is at the center of everything that we do. Our analysis  Buy-Side Representation
considers the feasibility of mergers, acquisitions, divestitures, ESOPs,
 Merger
management buy-outs and recapitalizations. We provide an objective,
independent assessment of value that is deeply rooted in qualitative and  Recapitalization
quantitative analysis using our proprietary methodologies.  Pre-Transaction Preparation

Invaluable Partners. Increasing Business Value.

Measuring Enhancing
Value Value
Founded in 2005 by Charlie Maskell, Chesapeake Corporate Advisors, LLC has been
successfully serving investor-owned and closely held emerging growth and middle market
companies that are looking to create and/or realize shareholder value. Our clients earn
Realizing Value revenues generally between $10 million and $200 million, and recognize the benefit our
unique, three-pronged approach, provides them.

3600 O'Donnell Street 410.537.5988

Natty Boh West Tower, Suite 810 410.537.5987 (fax)
Baltimore, Maryland 21224 info@ccabalt.com