Brian Andreosky, Senior Advisor at Aldrich Capital Advisors, and Eliot Peters, Principal at RA Capital, discuss current opportunities for private company owners, how to determine the right timing for transactions, and what buyers value in today’s market.
Brian Andreosky (BA): As a principal at RA Capital, you have a unique perspective as an investment bank deliberately built for private companies. What have you noticed about M&A activity for private companies and their owners so far in 2024?
Eliot Peters (EP): M&A activity is still nowhere close to where it was during the pandemic and is probably running a bit behind where it was prior to that, but in general, I think there’s been a slight uptick in activity in 2024.
While the Fed has signaled interest rate cuts are coming, there’s a general acceptance that massive rate cuts over the next 12-18 months and a return to a low-interest environment are unlikely. Both buyers and sellers are beginning to absorb the new reality, and that sort of certainty helps both groups make decisions.
BA: What specifically is driving the decisions of privately owned lower-middle market businesses to either sell now or potentially hold off?
EP: When deciding whether to sell or wait, owners of companies in this space often consider two main factors: financial and lifestyle.
In terms of financial factors, this usually means opportunistically pursuing a transaction due to high valuations. Given the high values during the pandemic, you don’t see that same relative enthusiasm today about valuations, which had impacted sellers’ decisions to come to market.
The second driver is lifestyle or personal reasons. Selling could be part of a long-term exit strategy, or perhaps the seller has reached a point in their business or personal life where it makes sense to consider a transaction. Time has value, and some owners may not want to wait for perfect conditions.
BA: Let’s talk about valuations. What trends have you seen this year?
EP: We haven’t seen any meaningful degradation of values in 2024 for high-performing companies. There’s a limited number of truly “type A” businesses, so the demand for those continues to drive high multiples. If you’re an owner of a high-performing company now is a great time to at least consider your options.
Conversely, the companies that might have challenges with customer concentration, pace of growth, or profit are starting to see some pressure on valuations. Owners of those companies are more likely to be waiting on the sidelines for now.
The good news for owners of both types of companies is that there’s a lot of liquidity in the market overall. While this liquidity might be selective and focused on not overpaying, buyers are motivated to find companies where they can make a good return.
BA: What factors are currently influencing the dynamics in the private equity and private credit markets, and how might changes in interest rates affect them?
EP: The key driver here is liquidity, which impacts both private equity and private credit. For the last five years or so, there seemed to be a surplus of private equity in the market. When interest rates rose, many investors poured money into private credit, an appealing asset class largely tied to funding M&A activities.
As a result, there’s now an abundance of private credit as well, leading to a decrease in its cost over the past year—around a 200-point drop—despite stable interest rates. This surplus has forced debt funds to lower pricing to compete for limited deals. Most of these loans are based on floating rates, so if base interest rates decrease, this could further reduce costs and potentially stimulate more activity, positively affecting valuations.
BA: As we head into Q4 of 2024, what is our outlook for the remainder of the year for M&A activity?
EP: I haven’t seen a material increase in deals coming to market this year versus last year, so I expect things to continue their current path in Q4.
There might be a slight increase in overall transaction dollar volume driven by large multi-billion public deals, but generally, it’s difficult for something to come to market in September and close by the end of the year. Most of the 2024 transactions are already in the market now. While there’s no official statistic on this, from what I hear, we aren’t seeing a massive amount of “new starts” in 2024.
One of the questions we get all the time from business owners is when should I sell my company? What advice do you have for owners based on the current market?
EP: For owners of companies that are market leaders, now is a great time to sell. Buyers are willing to pay a premium for companies that have industry-leading margins, have demonstrated consistent growth, or have a recession-resistant business model.
While a drop in interest rates could add more fuel, again, there’s a lot of liquidity looking for a home, and buyers have priced in the current rates. Some of this liquidity is in a “use it or lose it” situation, which could put a seller in a great position.
For owners who are considering selling—now or in the future—it’s critical that you’re realistic about what your business is and how it looks to an investor. If your company doesn’t have the qualities investors value, this is a great time to think about what changes you can make to increase the value of your business in the ways investors are looking for.
To learn more about Aldrich’s transaction services for business owners, click here.
About Eliot Peters
Eliot Peters is a Principal with RA Capital and brings over 20 years of experience advising clients. Mr. Peters plays a key role in the firm’s strategic direction and execution of client engagements, and is also one of the architects of RA Capital’s global network. He leads the firm’s cross-border practice and oversees relationships with corresponding firms in Europe, Asia, India, Australia, and the Americas.
RA Capital Associates LLC (“RA Capital”) is a member of FINRA and SIPC.
About Brian Andreosky
Brian Andreosky is a Senior Advisor with Aldrich Capital Advisors, and is dedicated to helping business owners transition their companies. In this role, he provides exit planning services to help business owners find the right solution to transition and maximize the value of their business. Brian is a member of the Exit Planning Institute (EPI).
Prior to joining Aldrich, Brian held roles in investment management, management consulting, and private equity.
About Aldrich
Aldrich Capital LP provides advisory services for business transactions, including succession planning, acquisitions, or mergers. We help business owners navigate challenges and unlock growth opportunities with actionable insights. Our innovative team is dedicated to your success.
