Inflation

by a searcher from INSEAD

2 years ago

Any thoughts on how inflation could potentially impact a search process? Was also wondering about what sectors could potentially be impacted and result in better (cheaper?) valuations with higher rates potentially acting as an offset

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searcher from Stanford University - Graduate School of Business

I would not let inflation impact your search process, but I would pay extra attention in your due diligence once you have zero'd in on a target. Look at the seller's past ability to pass through price increases and finance working capital. You do not want to be surprised by fixed price contracts on your outputs and indexed pass-throughs on your inputs. Re: valuation, it is supply/demand. I'd focus on buying a good business and not on getting a cheaper valuation on a business that is impacted by/has trouble managing inflation.

1 year ago | like reply | 0 likes

searcher from The University of Michigan - Stephen M. Ross School of Business

My guess is inflation would also impact willingness to sell/exit (i.e. lower response rate). Lower valuation + higher number needed to retire -> seller keeps operating?

1 year ago | like reply | 0 likes

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