Time to Sell? Maybe (Part 2).

Certain macro economic trends indicate now may be a good time for business owners to explore a sale of their businesses. Rising interest rates are one factor trending in favor of a sale.

Rising interest rates

Interest rates have decreased steadily since their peak in 1981, and they have been at historic lows since the Federal Reserve essentially reduced the short-term rate to zero following the 2008 housing crisis. Such a prolonged period of low interest rates had many experts publicly wondering whether inflation was a relic of the past. 

The COVID-19 pandemic and resulting stimulus and supply chain issues shattered such hopes. Inflation recently hit a 39 year high, and even Fed Chair Jay Powell is resigned that the trend isn’t transitory. Now the Fed is embarking on a series of rate hikes that will make borrowing money more expensive and likely slow economic growth.  

In other words, many businesses will find it harder to afford debt service while also experiencing revenue declines during the same period. Such issues will not only make operating businesses more challenging, they may also reduce valuations and slow M&A activity. Thus, the current deal climate and recent financials may present the best opportunity for business owners to exit for the foreseeable future.