Regardless of the effects of inflation, interest rate hikes, and the volatility in public markets, the market for private companies is still strong – for the moment.
State of U.S. Federal Finances
For the first time in history, the national debt exceeds the gross domestic product (“GDP”). This didn’t even occur in 2008 to 2009 during the “Second Great Depression”. National debt is $34 trillion while Gross Domestic Product is $25 trillion – national debt is 136% of GDP. Furthermore, US Treasury Revenue is about $4.9 trillion AND we’re spending just about $7 trillion with an increasing deficit. US Federal Revenue is only 14% of our national debt. National debt will never get reduced, much less paid back at this rate. Debt service alone on the $34 trillion would also seem to indicate that we will never have a balanced US Federal Budget again – ever. We are simply spending ourselves into a market correction. These numbers are alarming and owners are strongly advised to get ahead of any pending market correction.
Inflation and Interest Rates
Inflation is here and perhaps worse than thought. The Fed raised the Federal Funds Rate 11 times since March 2022. This is the highest the Federal Funds Rate has been since October 2007. Buyers of private companies typically pay about 50% of the purchase price using their own cash and borrow the other 50% or so. Typically, interest rate increases have a downward effect on the value of private companies … but – we have not seen this occur yet – in fact, in the market for sub $200 million deals, we’re seeing buyers use their own cash entirely and not borrow at all.
The Current Market for Private Companies
Until the pandemic hit, we were in the longest seller’s market in history. Good news – we still are; in most sectors. The markets for private companies remains strong.
Regardless of the effects of inflation, interest rate hikes, and the volatility in public markets, the market for private companies is still strong – for the moment.
Given the aforementioned issues and market conditions,
owners are strongly advised to move to market now.
It may be 10 years before we see another market like this.
Statistically, it takes about 8 to 12 months to confidentially open a market and sell a private company.
Get ahead of the next unforeseen event – now.