If the Economy goes into Recession...?

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May 04, 2022

by a searcher from Indiana University (System) in Dallas, TX, USA

I'm curious to hear what others perceive as the probability and impact of a looming downturn in the economy.

1. How severe will it be?
2. What impact wilt it have on Md Market and Lower MM/owner-operator deals?
3. What industries and sectors will be hit hardest?
4. What will the impact be on earnings multiples?

Thanks for the input!

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Reply by a searcher
from The University of Michigan in New York, NY, USA
1. Hard to say. Will partially (largely?) be dependent on what the Fed does with interest rates. Anybody's guess is as good as mine but I would expect them to let inflation run higher for longer - if this happens then buying into a sector with strong pricing power will be beneficial.
2. Depends on the sector, don't have a ton to add here.
3. Again not sure I have a ton to add other than conventional wisdom, but one thing I'm keeping in mind is this new dynamic where there are record job openings and businesses across sectors are struggling to hire and retain talent. I can see a people-intensive business being relatively more challenging in a recessionary environment where job openings remain elevated (to the extent they remain elevated).
4. In my experience, you're likely to come across people where their natural reaction is to want to sell on a pre-recession multiple of pre-recession earnings, so the key is cultivating a relationship with them, demonstrating you're the best buyer, etc.
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Reply by an intermediary
from Northeastern University in Boston, MA, USA
1. How severe will it be? - modest, unless investors lose faith in the USD, and/or we see a major war across Europe (not only Ukraine/Russia) 2. What impact will it have on Md Market and Lower MM/owner-operator deals? businesses under $10MM revenues will likely get hurt first, since they are under-capitalized, and light on management. Thus these businesses will see EV declines 3. What industries and sectors will be hit hardest? Typical recessions will see housing, autos, furniture and other durable goods get whacked, then all who serve them. Hospitality and travel become discretionary. Food/staples can gain. 4. What will the impact be on earnings multiples? Given today;s high multiples this is easy - DOWN.
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