I've observed...
(1) Most if not all my deals under investigation have TTM < 2023 (SDE & Revenue)
(2) Sellers trading on COVID bump income still - reset still in progress
(3) Continued declines in small business confidence (lowest in 11 years)
(4) Interest rates not improving
(5) Election year with unclear impact
Are you guys seeing this too? Searchers - are you adjusting your approach?
Not sure if I'm just overly bearish today, but I can't shake the feeling it's a transition period and buyer's going to be left holding the (expensive, PG'ed) bag. I can envision plenty of ways to mitigate, and maybe even deals to be had, but I imagine seller expectations will lag the market reality. What am I missing?
Are you adjusting your approach for macro risk?
by a searcher from The University of Chicago - Booth School of Business
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All great points on the macro-tailwinds that one needs to consider. The most frustrating part is probably that there is still so much undeployed capital amongst established funds that pricing probably hasn't corrected as quickly or aggressively as it probably should have. This is especially true on "quality" assets and sectors where there is a flight to safety (healthcare for example). It therefore suggests that Searchers should be even more strategic/targeted in their sourcing strategies (to avoid competing with such funds - both directly and indirectly in sectors where multiples are influenced/inflated by such activity).
As always, the key is being realistic on the quality of earnings and future earnings potential - and then appropriately evaluating the risk-weighted returns. Importantly, being sensible on the capital structure (especially debt) to allow you some meaningful headroom to manoeuvre. For me this is where Earnouts really have material value - aligning incentives but appropriately allowing you to accommodate for the uncertainty gap that can exists between all parties.