Will Lower Rates Revive Business Valuation Multiples?

 

Interest rates and business valuation multiples are closely linked, as financing costs significantly impact a buyer’s ability to pay higher prices for businesses. In Q2 2021, multiples were at an all-time high due to historically low interest rates, which made borrowing cheaper and increased business values. However, as interest rates began to rise, multiples dropped by an average of 30% by Q2 2022. Since then, they have remained fairly stagnant as buyers faced higher borrowing costs, which dampened their purchasing power.

As we move into the latter part of 2024, recent and impending interest rate cuts may create renewed momentum in the market. Lower interest rates typically lead to increased affordability and could result in rising multiples as buyers find it easier to finance acquisitions. We look forward to seeing how these rate changes will affect business valuations in the coming months and anticipate that multiples will trend in a positive direction.