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Low interest rates enabling sellers to achieve record sums for their companies

Posted on December 17, 2012 By

External economic factors invariably play the biggest role in determining the most salable time for companies. One of the biggest factors at play are interest rates and as you will probably already know, they are at a record low in both the US & UK, which is great for those considering selling their company.

Something you may be less aware of is that a very high percentage of buyers use some form of financing to secure their deals. Because of this, valuations typically tend to favor sellers. US business magnate, Warren Buffett, ranked as the world’s wealthiest person in 2008, is currently salivating over the M&A market and a number of his companies are currently involved in high profile deals. Buffett, however, has recently complained of being outbid on a number of deals which involved external financing. Buffet’s companies generally source finance internally, which is leaving them in a weakened bidding position with increasingly aggressive competition making use of the hospitable borrowing conditions.

Here is how Warren Buffet summed up the situation in an interview with CNBC recently:

“We don’t leverage our purchases so we’re buying on an all equity basis. But people who do leverage are getting significant portions of their purchase price at very, very low rates, probably as low as they have ever gotten. So that enables them to bid pretty aggressively.”

Whilst not all companies are realistic targets for one of Mr. Buffets companies, although he does have a substantial number of investments in a variety of industries. What this does mean for the M&A market in general terms is that when interest rates are low, and they are currently very, very low, buyers can and will pay more for companies. This makes sense as if you are a buyer and you can finance a transaction at today’s rates you will be able to pay more than you would have five years ago when the rates were much higher.

All this, of course, is great news for those considering selling their company as there is currently a big chance that high multiples will be reached. This is something we have been experiencing first hand here at Benchmark International as just last month we were involved in a deal which saw our client receive 20x EBITDA for their company, an unprecedented amount.

If you are considering selling your company get in touch with Benchmark International today and we can tell you how much you could possibly receive in current market conditions with a company appraisal that is without obligation or cost.

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