Navigating seller multiples while rates are rising

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May 23, 2023

by a searcher from Saint Louis University in St. Louis, MO, USA

As I've looked at different opportunities within my region, the consistent theme has been the asking price just doesn't pencil with typical leverage used in search deals even for companies with EBITDA in the $1M range. Is anyone else seeing this and if you are/have, what was your solution to this whether it be negotiating a more suitable selling price or other deal structure?

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Reply by a searcher
from University of Auckland in Auckland, New Zealand
Hi Josh, what sort of multiples are you seeing in your region? I am looking at a number of opportunities in the 4x multiple range, but with where our borrowing costs are, the forecast period to pay back all bank borrowing and acquisition capital is generally in the 8-10 year range. I have not seen multiples come down enough yet to compensate for the increased costs of borrowing. I suppose the options are to find deals with love multiples/EVs or try to use other mechanisms (i.e. vendor financing at lower interest rates) to make the deal add up? Discounted cashflow valuations may play a role here too?
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Reply by a searcher
from Saint Louis University in St. Louis, MO, USA
Hi Barry, I'm seeing multiples generally in the 4-5x range. The margins with interest rates to pay down SBA in 7 years are extremely tight and risky in my opinion. I don't have a solution yet but still looking and crunching numbers.
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