Impact of Inflation and Interest Rates on Deal Making

Impact of Inflation and Interest Rates on Deal Making

We are often asked by business owners who are contemplating the sale of their business, “What is the market like for selling businesses at the moment?” or “Is now a good time to sell my business?”. A valid question in any economic climate but one we are hearing more in these times with the increased cost of fuel, inflation and increasing interest rates.

In the last few months, we have taken on a good number of strong businesses which are well set to ride through the current economic headwinds. Indeed, despite the headlines in the media, most of our clients are currently reporting they remain as busy as ever.

Of course, our clients tend to operate in more recession resilient sectors such as cyber security and IT, logistics, engineering, building products and facilities management, but SME business owners also tend to have a positive outlook and a stoic determination to see through the media headlines and get on with things.

The reasons for selling owner managed businesses remain as ever based on succession and an owner’s a desire to retire, or in the case of mid-career sellers, the prize of selling their company to a large trade buyer or private equity portfolio.

Good businesses will always sell well, and so long as demand for your company’s products and services continues, now would seem as good a time as any to market a business for sale.

On the flip side, interest rates and the value of cash are likely to alter how deals are funded over the coming years, but there remains good appetite for acquisitions amongst our community of buyers. So why is this?

Over the last 10 years or so, funding credit has been historically low cost, with the base rate of interest being barely above 0%. This has led to buyers looking to fund acquisitions of businesses as much as possible through loan finance, whether they have cash reserves or not. Whilst this has enabled many buyers to enter the M&A market for SME’s without strong cash reserves, there remain many buyers in the market who have as a result maintained and built up strong cash reserves.

Whilst no-one has a crystal ball, we believe this bodes well for buyers remaining keen to acquire businesses. With inflation running at around 10% in the UK, the value of cash sat in the bank will diminish quickly. With good dynamic management and media headlines highlighting the need for price rises, SME businesses should be able to maintain profit margins, and as a result represent means to protect their cash reserves from the erosion caused by inflation.

Increasing interest rates will of course offset this erosion, but as the cost of borrowing increases, the level of funding that is possible to raise on a company’s balance sheet assets will inevitably reduce.

We are of course entering a period of flux in the UK, Ireland and the global economy, however, there remain good reasons to be confident you will achieve a successful sale of your business. With our database and relationships with business acquirers across the spectrum, we are confident we will find you well-funded buyers who can build your company and guide it successfully through its next chapter.


Would you like advice on the sale of your business?

We would be delighted to offer you a free appraisal and indicative valuation of your business to give you guidance on its value and attractiveness to buyers, the most likely deal structure and whether now is the right time for you to sell. Our appraisal can take the form of either a face-to-face meeting, a web meeting or a telephone call, as you prefer.

Please contact us on 020 8090 9380, email [email protected], or complete the form below to arrange an appropriate time to review your exit strategy and the value of your business in confidence and without obligation.

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