Lower multiples in higher interest rate environment?

searcher profile

November 25, 2023

by a searcher from University of Sydney in Sydney NSW, Australia

A question for searchers and investors; have you noticed any observable reduction in multiples on initial and bolt-on acquisitions given the higher interest rate environment globally?

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commentor profile
Reply by an member
from Vanderbilt University in New York, NY, USA
I think it is unlikely. You would expect to see multiple compression to compensate for a reduction in total equity returns due to the interest rate environment in asset classes that have already experienced significant capital inflows therefore normalizing returns.

I’d argue that since cash yields are already extremely high (2-4x multiple) you’d be hard pressed to find any multiple compression. Maybe 0.5x to 1x.
commentor profile
Reply by a searcher
in Houston, TX, USA
Multiples decline in a higher interest rate environment as cost of capital is higher, so the underlying value of the assets to be acquired with cash (debt) reduces. First hand experience has taught me that some sellers are highly unrealistic, and you should not waste your time with a seller or deal that doesn’t work in today’s environment. Be straightforward about price and terms immediately in the process.
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