IAG M&A Advisors

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from IAG M&A Advisors

The Effects of Rising Interest Rates in 2022 and 2023

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The hard truth for many business owners is that if you plan to wait a few years to sell your business, even if it grows, you might clear less than if you sold it now.

Wondering what the M&A industry will look like in 2023? With the current state of affairs, it may not be a seller’s market.

Historically, the market has been strong for M&A and valuations are at their peak. However, because forces such as interest rates, tax codes, and more equitable distribution of wealth (high PPP loans) have changed, we’re likely nearing the end of this era.

 

The window of plentiful M&A valuations is steadily closing. Just recently, there was a 50-basis point hike in rates by the Fed and multiple lenders are anticipating eight more rate hikes over the next year. There is a concern that after mid-term elections regardless of who prevails, the only way to stop inflation is to raise taxes on certain classes of citizens and let investment asset values plummet back to reasonable levels. If you are reading this, you are likely one of those unfortunate classes. Economists foresee it taking up to six years to straighten out from last year’s damages although economic uncertainty from abroad has introduced unforeseen challenges for raw materials and commodities. China threatens to take over Taiwan which has created uncertainties for many commodities and raw materials as an aging US business owner population means that more privately-held businesses will be made available for sale in the next decade which will lead to a supply overflow from buyers who can be very selective in picking what they need.

 

 

If you delay the sale of your business due to these conditions, multiples of earnings and valuations will very possible drop dramatically. As well as this, interest rates and taxes will put downwards pressure on ROI, and there will be more supply than demand in the marketplace. It may not be possible for most businesses to grow enough to counteract these devaluing effects even if they grow over the next few years.

 

What you should do if you want to sell your business in the next 2 to 3 years?

 

Knowledge is power. When you have the knowledge of what’s going to happen in the future, you can make decisions with clarity, which will determine your options. As a business owner, it is important for you to know if your company is one that is likely to do well in the next 1-5 years. You should get an M&A valuation now and see if your company is likely to outperform any challenges the market throws your way. With this information and guidance from an expert, carefully think about whether waiting will really be best for you.

 

You don’t want to be one who just got their business going strong again, but waited too long and rode the wave back down. If a company doesn’t understand macro forces and adjust accordingly, then the company value will evaporate, which changes the owner’s legacy.

 

We know there is still time to exit before outside forces take their toll on your business. You can get an updated post-valuation now so you can prepare for an exit strategy no matter when it takes place.

 

If you’re interested in selling your company, we encourage you to use our valuation calculator. As one of the leading M&A advisors in the US, we understand the current environment and want to discuss your motivations for selling.

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