The recent interest rate cut by the US Federal Reserve presents a pivotal moment for business owners considering an exit. A 0.5% reduction in rates may seem small, but its ripple effects are profound – especially here in Canada. Many economists are forecasting that this rate cut is the start of several additional cuts aimed at stimulating the economy.

For business owners looking to sell in the next year or two, this is particularly important. Historically, there’s a strong relationship between interest rates and business valuations. As rates drop, the cost of borrowing becomes more attractive, driving up buyer demand. This, in turn, can boost business valuations and more attractive deal structures. While some sellers have secured strong valuations even in a high-rate environment, the broader market has seen a downturn. With interest rates now falling, this trend could reverse, creating more favorable conditions for those looking to sell.

In the last few years, overall M&A activity (particularly deals greater than $25M EV) has slowed due to rising rates and tighter lending policies. Many deals that would have involved cash-heavy offers have also become less frequent. However, that’s changing. Globally, more accommodative monetary policies are starting to reshape the M&A landscape. Take Europe as an example, where recent rate cuts led to a 17% increase in deal values. It’s a sign of the renewed confidence in the market.

As optimism grows that a recession can be avoided and the economy stabilizes, the M&A market is set for a resurgence. This makes it an ideal time to consider selling your business while conditions remain favorable. If you’re unsure about whether to sell now, this rate cut might be the push you need to start thinking more seriously about an exit strategy. Let’s work together to develop a plan that fits your unique needs and ensures you capitalize on the momentum in the market. Reach out to our team at Portage M&A Advisory to discuss your options.

Jim Friesen, MBA, CPA, CM&AA
Founder + Partner