Business transactions: 2023 wrapped; 2024 predicted

Jamar Cobb The 2023 small and mid-size deal space was a whirlwind. Interest rate hikes, capital sourcing transitions, news about buyer cool-downs, and market uncertainty due to bank failures and war made doing deals a bit trickier. Interest Rates Yes, money cost almost twice as much to borrow in 2023. Although no one wants to pay higher interest rates, the impact on dealmaking was significant. Increasing rates means that the amount of cash flow that can pay debt in an acquisition decreases. This translates to lower transaction values, lower loan amounts, and higher debt service. The interest rates did not kill deals, but it certainly made them harder to finance and cash flow. The Federal Reserve has signaled an interest rate cut this year, which should accelerate deal velocity and demand. Bank Failures Thankfully, there were not widespread bank failures. However, the failure of Silicon Valley Bank increased bank underwriting department’s scrutiny of deals. Closings took longer, buyers and sellers were asked for inordinate amounts of information, and equity contribution and collateral requirements increased. Now that the banking environment has stabilized, hopefully SBA and conventional underwriting processes will, too. Capital Sourcing Thankfully, private money was and is flush in the...