Interest Rates and Valuation Multiples in 2023

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December 30, 2022

by a searcher from Temple University - The Fox School of Business in Philadelphia, PA, USA

Aside from borrowing activities, interest rates won't have much of an impact on business operations. The profits for the buyer immediately take a hit, and the seller still wants their 3x multiples. With less profits to reinvest, do smaller deals become less attractive? How do you see interest rates impacting valuation multiples in 2023?

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Reply by a searcher
from IE Business School in Brattleboro, VT 05301, USA
Just my 2 cents: with the extent dependent on particular industry and business model, I think we should expect rising interest rates to have both direct and indirect effects on business operations. A decade of ZIRP means that business leaders across the economy haven't had to deal with the challenge of "real" rates since December 2008, and even if a business is well insulated against this its suppliers, customers, partners, and employees may not be.
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Reply by a searcher
from Vanderbilt University in St. Petersburg, FL, USA
will be interesting to see. since higher interest rates drive down debt service coverage ratio (dscr), all else consistent, a buyer can borrow less. i don't foresee buyers wanting to put down more equity on small deals, so i would suspect downward pressure on valuation. a lot of other moving pieces though. 23 should be an interesting year.
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