2023: Insights from a year of high interest rates

We've been tracking the impact of high interest rates on the #smb #acquisitions space for a while. This started with our Private Market Insights interview with ^redacted‌ last year and continues to be important.

Here are 4 thoughts about rates and #eta as we close out 2023:

1) Activity and interest in our space remained strong, but deals were harder to get done. Loans that would have easily met debt service coverage tests in 2021 are no longer viable in the current environment.

2) Anecdotally, the availability of strong yields on treasury bonds has led to some cooling of investor appetites for risk. When the alternative to an SMB investment is a risk-free 5% return, that investment looks less attractive.

3) That being said, deals still got done, and with more success than other parts of the economy. The IBBA Q3 report notes a rise in alternative financing methods such as seller financing, earn outs, and retained equity, often at rates better than those offered by banks.

4) Multiples diverged across the industry: While strong businesses with robust fundamentals continue to garner higher valuations, parts of the mid-market and under $3M EBITDA segments face challenges.

We published a longer article on this topic recently. Check it out! https://privatemarketlabs.com/navigating-high-interest-rates-in-small-business-acquisitions/