The current volatility in the financial markets creates an element of uncertainty that is likely to influence the value of businesses in the short to near-term. The impending increase of interest rates, along with share price fluctuation, the higher cost of energy, dislocation of supply chains, and higher inflation are set to impact dealmaking. Because of this volatility, business owners could see more complications in agreeing with parties on deal terms, as well as a decline in overall deal volume as executives lose confidence in the overall economy.
The activity of the M&A market throughout the first few months of 2022 has paced slightly behind 2021. However, dealmakers remain optimistic, attributing last year’s Q1 performance to an uncharacteristic quarter for the M&A industry. The recent volatility, however, has dramatically impacted the use of stocks, limiting funding options and making it more difficult for larger companies to acquire smaller rivals.
Inflation is one of the core factors currently influencing the market, primarily because of the projected increase in interest rates. The federal government’s push to combat interest rates by raising its benchmark funds rate could be one of the main impediments to M&A activity in the current year. The increasing cost of financing transactions could prevent companies from pursuing deals they may have pursued before the hike.
Market uncertainty, rising interest rates, and hindered equity markets can dramatically shift the M&A market, making it much more difficult for business owners to receive the proper valuations they deserve. Gaging timing, the demand in the industry, and the current health of a business will be critical factors for business owners who are considering a sale in the current market environment before more uncertainty influences a possible slow-down in dealmaking.
The Aberdeen team is committed to partnering with business owners and advising them based on the economy and the true value of a business. If you’re considering selling, reach out to us for a free consultation to learn more about how we can help.