Buyout/Transitional Appeal in Uncertain, Inflationary Environment?

by a searcher from Brigham Young University

Feb 27,2023

Hi all,

I'm new to the community and recently started up a search fund with a few partners. I'd love to hear your thoughts on owner/operator willingness to sell or engage in discussions in the current lower middle-market environment. Do you feel that owner-operated businesses are less open to being acquired/invested in given a tighter labor market, costlier financing options, and increased market uncertainty? Is it making the deal process more difficult/transactional, or more expensive?

Again, I would love to hear your thoughts/experiences with this as our fund starts this new journey. Thanks!

Cole

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searcher from Brigham Young University

Thanks for the insight Brad, I really appreciate it. Appreciate the picture you painted of inflation and price expectations.

03/01/2023 | like reply | 0 likes

lender from Eastern Illinois University

Great question. The answer is a bit nuanced. From what my clients who are searching are telling me is that many sellers are holding tight on the prices they want for their businesses and not willing to flex due to higher interest rates. Although in general I am starting to see multiples comes down from their peak that people are paying, many owner-operators have a set price they want upon sale (usually what they think they need to cover taxes and support themselves in retirement or for their next venture) so it can be hard to get them to move from that number. I am starting to see more creative structures involving more seller debt or other options to get around some of this though.

Overall, I think there are still plenty of people who want to sell, especially as the baby-boomer owners continue to age out and look to retire. Inflation is having a double impact though. It is lowering how much people can afford to pay for a business at the same time many who want to sell now think they need more to survive in retirement because everything costs more. Only time will tell how it all shakes out.

02/28/2023 | like reply | 1 like

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