M&A Professionals Predict Interest-Rate Stress in Lower Middle Market

May 18, 2017

 

According to the 2017 Pepperdine Private Capital Markets Project, nearly two-thirds of M&A experts predict that a rising interest environment will impact their ability to finance transactions.

 

The Q1 2017 Market Pulse Survey found that almost half of advisors expect a decrease in valuations, and about 40% predict a decrease in the buyer pool. The study looked at businesses in the lower middle market, with annual revenues from $2 million to $50 million. 

 

“By raising interest rates, the Federal Reserve is signaling that the economy is improving and lender risks are decreasing. An interest rate increase should encourage lenders to initiate more loans, allowing them to gain a higher yield on their capital,said Craig Everett, PhD, Director of the Pepperdine Private Capital Markets Project. “However, rising interest rates also mean borrowing will become more expensive. That raises the total cost of a transaction, which is why advisors are somewhat pessimistic about getting deals financed at the current values,” Everett continued. “Either way, buyers and sellers who are looking to complete a transaction should accelerate their efforts now, before lending costs increase and values decrease because neither of these conditions are conducive to completing a transaction.

 

 

To learn more, check out the Pepperdine Private Capital Markets Project

 

 

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