The S&P 500 Index has declined 24% since its peak in January, indicating that a bear market and a potential recession are upon us. While recognizing the economic factors influencing the downturn, it’s also essential to understand the physiological factors contributing to the instability, and what sellers can do to still reach their selling goals.
A bear market is when a market experiences a prolonged price decline, typically when a broad market index drops 20% or more from its most recent high. The 20% mark typically foreshadows to investors that there is a recession on the horizon, however, it isn’t always the case.
In our previous newsletters, we’ve covered various factors influencing deal-making over the last few months. Inflation, rising interest rates, the war in Ukraine, and fears of a recession are causing buyers to take their time evaluating purchases, resulting in lower valuations for sellers.
While there are physically measurable changes occurring, the psychological aspect of making purchases is what can cause uncertainty. Bear markets are characterized by a low level of confidence and pessimism that investors have, causing them to sell investments and stopping them from buying more. Attitude and emotion are hard to forecast, so it’s up to sellers and their Advisor Team to strengthen their positioning if they intend to sell.
For sellers, this doesn’t mean a total halt to exits and dealmaking if they know how to maximize value in a challenging market—maintaining margins and continuing to grow showcases future stability and profitability to potential buyers.
By building relationships with clients and keeping open lines of communication while also making efforts for new client acquisition, sellers can showcase confidence to current clients and ongoing growth with the addition of new clients. Additionally, maintaining margins will demonstrate a strong management team and flexibility during a decline.
Each selling process is unique, which is why our Advisor Team at Aberdeen is committed to understanding our client’s selling goals and identifying and prioritizing objectives with respect to their business. If you’re considering selling or want to learn more about how you can position your business to maximize value, feel free to contact us for a complimentary consultation.