Economics back in January 2021
Back in early 2021 there were certain signs that the economy was going to change in some way, and many predicted this change would not be positive. Post Pandemic in January 2021 the U.S. Government continued to pour billions of dollars into the economy by printing more money. Economics 101 tells us supply and demand concepts would kick in, and they did. More supply and no growing demand made the U.S. dollar weaker. In late 2020 I had an investment banking firm tell me that in the next 18 months, enterprise values would begin a decline. I believed it and communicated that to our clients looking to sell.
Then on top of that oil prices continued to climb.
January 2020: Approximately $25 per barrel
January 2021: Around $70 per barrel
January 2022: Near $100 per barrel
June 2022: Approximately $103 per barrel
These increases were influenced by policy decisions affecting oil supply, such as the cancellation of major pipelines and restrictions on drilling permits. While geopolitical events like the Eastern European conflicts contributed, supply constraints played a significant role in driving prices upward.
The Markets
The rise in oil prices, coupled with an oversupply of U.S. dollars, led to increased costs in transportation and goods, contributing to inflation. By April 2025, U.S. inflation had cooled to 2.3% year-over-year, the slowest pace since February 2021, edging closer to the Federal Reserve’s 2% target.
Valuation of Companies
Over the past decade, the M&A market witnessed record-high valuations. Low interest rates enabled buyers to leverage more debt, supporting higher purchase prices. However, as interest rates began to rise, borrowing became more expensive, leading to downward pressure on valuations.
The pandemic-induced shortages and fears of rising interest rates led to inflated prices across various sectors, including real estate, automobiles, and companies. Since March 2022, these markets have shown signs of softening. Interest rates continued to climb, and by June 2022, the stock market had pulled back, causing buyers and investors to exercise caution.
In 2025, the M&A landscape remains challenging. New tariffs introduced by the Trump administration have disrupted deals, particularly affecting private equity firms. The industry holds an estimated $3.6 trillion in unrealized value across 29,000 unsold companies. FNLondon
Advice for Sellers
If you’re considering selling your business, it’s advisable to proceed promptly. Valuations have been declining, and this trend may continue through the end of 2025. Waiting could result in lower sale prices.
Advice for Buyers
For buyers, patience may be beneficial. As valuations decrease, opportunities to acquire businesses at more favorable prices are likely to emerge in the coming months. Monitoring the market closely and being prepared to act when the timing is right could yield advantageous deals
