The Federal Reserve has finally begun to reduce interest rates. No one knows how far or how fast this downward cycle will go, but consumers, companies, and even Private Equity valuations will all be impacted.
Consumers have come through this round of inflation with high interest rates for a longer period, largely unscathed. Employment is softening but remains solid. Wage increases are slowing, yet consumers are still spending, as evidenced by recent strong retail sales reports. The one area of the economy that has been directly affected is housing, with first-time buyers caught between strong demand, limited supply, and high interest rates. Lower interest rates will likely stimulate housing demand further, but they will also likely increase supply as builders see some relief on the construction debt side.
Companies will also benefit from reduced interest rates as their borrowing costs decrease. Working capital will be easier to finance, and capital expenditures should see a positive boost as well. For business owners ready to sell, the change in interest rates may create a very attractive period of enhanced purchase price multiples, paid by financial buyers looking to leverage their equity investment to maximize returns.
It is still early days in this new interest rate cycle, but the “die is cast” by the Federal Reserve. At the Sellside Group, we are happy to discuss the selling process and your company’s valuation with you.
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