U.S. inflation and rising interest rates…

professional profile

September 18, 2022

by a professional from Wayne State University in Detroit Metropolitan Area, MI, USA

Searchers, business owners, lenders, and investors, how has the rise of inflation and interest rates impacted your search or acquisition? What metrics do you use to safeguard your search (if any). If you’ve been in the “fund” world since before 07’-09’, what strategic effort(s) did you implement; is there a slow-down, decrease/increase in multiples; can you share some information from your last experience(s) and if it’s similar to your search today?

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commentor profile
Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
The biggest issue I think I am seeing at the moment is that sellers have not reduced the multiples they are looking for despite rising interest rates. In theory multiples should come down some as it becomes more expensive to finance acquisitions. Hopefully this will change over time, but demand for acquiring businesses has remained strong so there are people willing to pay the prices sellers are asking.

Overall I am a bit more bullish on interest rates. Although they are going to go up in the short-term for sure, I expect they are eventually going to go back down in the not too distant future. I do not know if that is a year or two from now, but eventually the economy is going to give, and if inflation comes back down, I think interest rates will follow it back down, especially if the economy is in a recession. This is purely speculation from me at this point, as I think there are some outside factors driving inflation that the Federal Reserve cannot fully control, but I have to think there will be a breaking point eventually as rates go up. We are seeing the housing market and even commercial real estate start to give and face some major headwinds due to higher interest rates, and that will eventually have a big ripple effect in the economy.
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Reply by a searcher
from Cornell University in Los Angeles, CA, USA
Rates are up (and no one knows where they'll stop if you're getting a variable rate), so theoretically the prices should come down but with high inflation Cash Flow today of $400k next year can be $440k by keeping steady, so that will affect prices from coming down. Net, net I think it will be more expensive for buyers with only sellers willing to take a haircut if they really need to sell. Also, depends on which industry. Recession resistant industries will actually sell at a premium (factoring in the variables above on top of that) and cyclical ones will trade at a discount.
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