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What Market Conditions Might Impact My Company Valuation?

Posted on April 24, 2023 By

Company valuations are crucial because they determine how much you can sell your business for, and the higher the valuation, the more money you walk away with. And several internal and external factors can affect your valuation. 

Internal factors are things you can control within your business. This includes growth strategies, marketing plans, having the best talent, and strong leadership. But several external market conditions are out of your control as a business owner. By understanding these external circumstances, you can better determine the best time to sell your company. 

It is important to keep in mind that these circumstances are not absolute in every situation, especially for lower and middle-market businesses. A smaller firm may experience changing market factors in different ways than a Fortune 500 company does. Your company may face unique considerations and still be valuable even during economic downturns. In any case, it is critical that you understand what factors you may face and to what extent they can affect your valuation.

Sector Demand
The sector that your company operates within can have a significant influence on its value. If your particular industry is performing well, that's good news for you. A company is more likely to garner a higher valuation in a thriving sector than a company in a stagnating, struggling, or shrinking sector. When a particular industry enjoys favorable circumstances, it gains more interest from investors, bringing more money to the table and attracting higher overall average valuations. It can also make the environment more competitive, sowing the seeds for a bidding war. That's something that's always good news for a seller. 

The Economy
Much like the performance of the overall global economy impacts nearly everything, it can certainly impact the valuation of a business. When the economy is in a downturn or a recession, there is usually less appetite for investment, especially for younger companies or those that are considered to be at higher risk. As a result, business valuations are generally lower during these times versus when the overall economy is performing well. And as we previously mentioned, your particular company can be immune to the impacts of the overall economy.

Cycles in Your Sector
It is usual for industries to go through cycles of contraction, expansion, or consolidation due to different events occurring at other times. One major occurrence can impact specific sectors differently. For example, the COVID-19 pandemic economically wreaked havoc on the travel and hospitality sectors but positively impacted the technology sector because everyone began working remotely, and demand surged as a result.

Growth Potential
If your company shows a strong propensity for future growth, it will play a large part in getting you a higher business valuation. Buyers want businesses that they can grow because it ultimately means more money for them. If the market conditions are right for you to stoke growth, you will be able to get more money in a merger or acquisition. There are certain steps you can take to drive up your valuation potential.

Do you have an exit or growth strategy in place?

Comparable Companies
Companies that are comparable to your own can affect your valuation. It is actually a common way that valuations are conducted. Looking at how these similar businesses are performing in the market can be a great indicator of your company's value. If companies similar to yours are struggling, that will also reflect on your business.

Size of the Market
Larger markets usually mean more upside for investors. This translates to a higher business valuation. The same goes for smaller markets (lower valuations). When there is strong demand in an industry for a product or service with a low market supply, investors will be more interested. However, if your market is flooded with competitors, it usually lowers your corresponding valuation, depending on various factors.

Cost of Capital
Your company's valuation will also be impacted by the cost of capital and its availability at your sale or exit. This includes whether interest rates are high or low, if the market is strained for capital because investors are holding off or if lenders are tightening their credit policies. These kinds of economic factors increase the level of risk for investors, and the cost of capital is directly correlated to their return on investment. So in these types of scenarios, it is normal to expect lower valuations. 

Government Policies
Changing government policies can also influence company valuations. For example, newly implemented regulations and tax reform policies can impact businesses due to stricter rules and higher tax costs. 

Are You Ready to Sell?
As we mentioned, not every external factor can be applied to every single company. Your business may still be highly valuable even during an economic slump. Quite a few more factors impact valuations outside of market conditions. It is a very complex process that you shouldn't enter into lightly. Our M&A experts at Benchmark International can help you determine the best time to sell and how to drive up the valuation of your company. We will work to get you the best deal for the company you have worked so hard to build. It's what we do every day.


Schedule A Call


Europe: Michael Lawrie at +44 (0) 161 359 4400 /

Americas: Sam Smoot at +1 (813) 898 2350 /

Africa: Anthony McCardle at +27 21 300 2055 / 


Benchmark International is a global M&A firm that provides business owners with creative, value-maximizing solutions for growing and exiting their businesses. Benchmark International has handled over $9.4 billion in transaction value across various industries from offices across the world. With decades of M&A experience, Benchmark International’s transaction teams have assisted business owners with achieving their objectives and ensuring the continued growth of their businesses. The firm has also been named the Investment Banking Firm of the Year by The M&A Advisor and the Global M&A Network as well as the #1 Sell-side Exclusive M&A Advisor in the World by Pitchbook’s Global League Tables.





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