After high inflation and interest rates challenged the economy over the last years, the past couple of months saw significant improvement. Price increases have slowed to near target levels and the Federal Reserve has started its rate cutting cycle, providing welcome breathing room going forward to both consumers and investors.
While a cooling labor market and soft housing investment call for caution, the overall U.S. economy continues to be strong based on a healthy consumer and robust business investment. Real GDP growth continues to outpace both its own historical rates and that of many other developed countries. After a significant slowdown was predicted by many at the beginning of the year, it looks increasingly likely that a recession can be avoided in the current economic cycle.
For those thinking of going to market, the balance of the year should be used to thoughtfully prepare for a 2025 launch. For those in market, we believe several of the themes we have witnessed throughout the year will continue to persist:
- Resilient businesses continue to be highly sought after as acquirors look to stickier and more predictable revenue models to drive growth and mitigate risk. In these times of market uncertainty, predictability of earnings will be key to garnering premium valuations.
- Acquirors will continue to focus on unit economics and customer-level data. Sellers should be prepared to furnish and answer more granular information than they have historically as prospective acquirors try to ascertain “new normal” performance.
- Tuck-in acquisitions will continue to be prominent in the near term as the cost of capital remains relatively high and risk tolerance evolves.
- Elongated diligence periods will continue to be pervasive, with prospective acquirors stretching diligence processes out to better assess financial performance against projections and potentially re-trade on valuation. Now, more than ever, it is important to engage an advisor to run a tight M&A process to optimize the outcome.
As you look to navigate complexities within your own business, we at DCA welcome the opportunity to discuss where we can help you find value.