Exits in a Stagflationary Environment?

July 03, 2025

by a searcher from The University of Chicago - Booth School of Business in New York, NY, USA

In today’s stagflationary environment — slowing growth, persistent inflation, and rising rates — how do you see search fund exits evolving? Are we seeing buyer caution, crowded-out private equity, compressed multiples, or a pivot toward longer-hold value strategies and strategic tuck-ins? Curious how these macro shifts are shaping exit theses.

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Reply by a searcher
from Massachusetts Institute of Technology in Apex, NC, USA

Uncertainty is what hurts businesses, especially as people try to figure out how to value a business based on future growth. I'm certainly not an economist, but US GDP growth is still positive, inflation has moderated (though above FED goal), real wages have increased over last year, and interest rates haven't moved for ~24 months and consensus next policy move is a rate cut, not increase. So I don't see stagflation in the data. The biggest issue for PE is returning cash to LPs as many "overpaid" for business in pandemic era or had significant business changes/issues due to pandemic causing misses in projected growth. SBA defaults among searchers are up (leading to SBA tightening) but more likely due to increased interest in search funds and much more self-funded searches which while better for searchers takes away some of the guidance and market wisdom (aka buy more bad deals). Gov't policy, AI all add more uncertainty in what the world looks like in 5 yrs so agreement on valuations becomes more challenging. But good operators make money in bear markets, and make even more in bull markets.

Reply by a searcher
from University of California, Berkeley in 美国加利福尼亚圣克拉拉

First, do you need an exit? If you didn't use investor's money, you can hold the company longer until a better time. In general, PE and strategic buyers are the most common exits. If there are already some big companies in your industry, think about how to be a strategic partner with them from day 0.

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