How Will Fed Rate Hikes Affect The State of M&A?

Calm Waters Never Made a Good Sailor

At Strategic Exit Advisors, we have weathered many storms. And while fluctuations and cycles in the market have made some investors skittish, true entrepreneurs have always been able to capitalize in both fair and foul weather. 

We specialize in helping entrepreneurs achieve their best exit because we have one goal – to help entrepreneurs sell their businesses. And, well into our 16th year, our success has no signs of slowing down.

As we turn the corner on Q2, many entrepreneurs are wondering what to expect for the remainder of the year.


M&A Through Q2


As continuing Covid-era supply chain and labor issues linger – and amidst the ongoing war between Russia and Ukraine – the pressure on markets has been felt across the board. In recent weeks, fossil fuel prices are climbing as inflation in the US has reached a 41-year high. 

The Consumer Price Index is up 9.1% since June of last year, with the biggest pain points being food and energy costs. Groceries are up 12% on the year. Energy prices are up 41.6% annually

Even as the Fed looks to turn up the dial on interest rates and cool inflation, the doom and gloom amplified in news cycles can paint an unrealistic picture for investors and entrepreneurs ready to exit their business or start a new chapter in their lives or career. 

This market cycle is like other storms in the past – all of which have come and gone. The way to navigate this uncertainty is with expertise, while ignoring many of the talking heads who are theatrically reaching for the panic button. 


Deal Making Will Endure 


The emphasis of Q1 2022 was not what buyers were willing to pay for a deal, but rather, which deals actually closed. With interest rates on the rise and an uncertain market, deals in private equity will push through bearish times, but it’s likely they’ll continue with greater scrutiny.

Yet, there’s more dry powder than ever as Private Equity and Venture Capitalists sit on cash reserves. While overall Q2 2022 year-over-year quarterly VC deal count was down, it still exceeded pre-2021 quarterly totals

The fact remains: if a business is profitable and expected to remain profitable, focusing on value will be key. As for the time being, business buyers outnumber sellers as consolidation continues across industries. This is to say, a record amount of usable capital remains in the market and is ready to be put to use, and multiples have remained steady. 

Where multiples in some high-demand industries have grown, quality has become ever important as buyers become more discerning. 

Even with interest rate hikes, labor shortages, mounting inflationary pressures and supply chain disruptions, eager sellers are finding eager buyers to put capital to work. This signals that valuation, leverage, and deal terms are more important than ever. As a result, M&A activity may continue steadily into late 2022 and early 2023. 


Capital That Needs To Be Put To Work


Business owners looking to sell in the current market should look at optimizing their internal processes, governance, and financial performance before heading to the market. And even if a deal comes knocking at your door, an interested buyer does not necessarily guarantee the right buyer. 


Understanding the market and what motivates a strategic buyer vs. a financial buyer will be essential in maximizing the value of the deal. 

Regardless of the economic environment, timing and preparedness is critical when it comes to successfully exiting your business. When a firm is enjoying quarter after quarter and year after year of sustaining growth, it may be the optimal time to exit, as a crucial driver of value is growth – in revenue, cash flows, and profitability.


Identify Strategic Buyers for Your Business


As the cost of debt increases due to interest rate hikes from the Fed, it’s critical for business owners to align their organization with value drivers in their industry. 

It’s also essential to understand how inflation, rising interest rates and a possible recession could affect your company: be ready to educate potential buyers as to how your business is sheltered from this risk or adequately hedged against it. 

Despite possible headwinds, opportunities for entrepreneurs with strong values and clearly defined priorities remain; they will continue to be rewarded in today’s M&A environment when supported by the right team of professionals, who are capable of identifying strategic buyers willing to pay higher multiples.

At Strategic Exit Advisors, we look forward to continuing to be your trusted partner. Call us anytime (215) 489-8881 or schedule a conversation here.



Strategic Exit Advisor is an investment bank for entrepreneurs. We help owners achieve their ultimate exit by focusing our process on buyers willing to pay higher, strategic multiples. We understand what you’ve been through building your business and make certain you get paid for it. At Strategic Exit Advisors, we focus on the transition, as well as the transaction.

Strategic Exit Advisors