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How Rising Interest Rates Will Impact Business Owners Wanting to Sell Their Company

By Generational Equity

Interest Rates

Dallas, Texas, December 16, 2016 – Wednesday’s decision by the Federal Reserve to raise interest rates should be a wake-up call to those planning to sell their businesses over the next few years, according to M&A professionals with Generational Equity.  Generational Equity provides mergers, acquisitions, strategic growth advisory services, and information for privately held and family-owned businesses to exit their companies successfully.

“Wednesday's modest increase in interest rates is not likely to have an immediate impact on the M&A market,” said Dave Heymann, senior merger and acquisitions advisor at Generational Equity. “If this is the beginning of a trend in interest rate hikes, as many believe it is, then the value of some businesses eventually will decrease as the cost of financing increases.”

“With interest rates still at historic lows this is an ideal time to begin planning an exit strategy because of the lead time necessary for due diligence, market research, negotiations and financing a transaction,” notes Heymann. “The opportunities created by record low interest rates are likely to diminish over the next few years if the Federal Reserve continues the trend of increasing rates.”

The good news for business owners planning an exit strategy is that slow growth in the economy and low returns on other investments mean that many businesses are turning to acquisitions for additional growth. “Many companies are choosing to include M&A as an integral part of their strategy,” according to the report U.S. Executives on M&A: Full Speed Ahead by KPMG. Entering new lines of business and expanding the customer base or geographic reach were some of the most common reasons by executives surveyed for the report.

“For now, low interest rates provide a real window of opportunity for business owners to cast a wide net for potential buyers and sell when the market is ready,” said Heymann. “This process takes time and by 2018 interest rates may have moved enough that they become more of a factor in the market.”

“While companies with good liquidity may not be impacted by higher interest rates in their daily operations, virtually every deal will be significantly impacted if the cost of financing changes the potential ROI,” said Heymann. “When interest rates rise, buyers have other options for deploying their capital so they will have less dollars allocating to acquisitions. In addition, buyers place varying values on a potential acquisition based in part of how they will finance the deal.”

“So the goal is not just to identify a single potential buyer but rather create an auction among several potential buyers and if interest rates continue to rise, identify buyers for whom this is less of an impact.”    

By Carl Doerksen, Director of Corporate Development at Generational Equity.

© 2016 Generational Equity, LLC. All Rights Reserved.

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We knew it would be a difficult task to have someone really understand our business and our market, prior to researching a possible buyer, so it was imperative that we found someone of your caliber, with definite proven experience in this area.
Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
Thanks again Phil and feel free to have a future client call me if they would like a referral. You are a true professional!
Andy Graham, Vice President, Modern Heating & Plumbing
Tom Staszak is one of the most professional people I have dealt with in my last forty years of business. You’ve got a great group of people and you have built a truly professional organization.
Michael J Polarek, President, Paragon Packaging
Thank you again for all your guidance and support. Any company will achieve what they intend, if they have you on their team!
Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
We are extremely pleased with the way Generational Equity handled the sale of our company. Your associates, Tom and Chris, did an outstanding job of getting us (me) through the process.
Michael J Polarek, President, Paragon Packaging
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.
Bil MacLeslie, CEO, ipHouse
Generational Equity’s assistance was invaluable in compiling and marketing our business.
Bil MacLeslie, CEO, ipHouse
I must say that I have never worked with a more driven, competent and focused individual as Don Ho.
Jay Dinnison, Owner of Sharpe Mixers
The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.
Andy Graham, Vice President, Modern Heating & Plumbing
We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.
Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.
Ralph Noblin, President of Noblin & Associates
I couldn’t have asked for a better team than Michael and Deborah. We couldn’t have done it without them.
Robert Evans, President and CEO of Mealtracker Dietary Software
We will highly recommend Generational Equity and Musa Jagne to any business owner about to embark on the same process.
Karen S. Williams, CFO, BW Manufacturing
Michael worked tirelessly, He followed every lead meticulously and urgently to make sure nothing was missed.
Robert Evans, President and CEO of Mealtracker Dietary Software
Greetings Mike. Thank you for the captivating and compelling presentation you made at the Phoenix presentation last week. Over many years in business yours was the most informative and well-presented presentation, on any subject, that I have ever attended! Your energy and enthusiasm combined with your concise and captivating support of your positions with easily understood examples and data was compelling.
Pete L.
Bruce and I wanted to take this opportunity to thank Generational Equity for assigning Musa Jagne to our transaction. In Bruce’s words, “Musa did one hell of a job for us!”
Karen S. Williams, CFO, BW Manufacturing
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).
Bil MacLeslie, CEO, ipHouse
The process was much more involved than I expected and your help, experience and advice was a big factor in making the negotiations go as smoothly as possible.
Terry D. Wickman, President, Keytroller
We were happy to see the interest in our company and what we cherished has not just a valuable company but an important company to the communities we served in.
Larry Moore, Owner, A Company Portable Restrooms
I quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.
Jay Dinnison, Owner of Sharpe Mixers
We thank you Eric and Generational Equity making our dream come true.
Larry Moore, Owner, A Company Portable Restrooms
I wanted to write you a quick letter to express our appreciation and our delight on the outcome of helping us through the process of our recent sale. We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.
Terry D. Wickman, President, Keytroller