Dealmakers expect interest rates to play a small but significant role in new year acquisitions, according to a year end survey by KPMG. The Federal Reserve’s plans to curtail quantitative easing and potentially increase interest rates in 2022 “may prompt acquirers that rely on debt financing to move sooner to make deals, rather than later,” the survey’s conclusion reads.
It’s yet another catalyst for increasingly acquisitive financial sponsors. Given the critical role leverage multiples play in PE financing packages, anticipation of rate increases could make private equity even more eager to deploy capital ahead of schedule.
Given that current signaling is just that, a rush to execute deals based on financing cost has yet to materialize, however. “I think the Fed is walking fine line keeping economy humming and staving off inflation,” says Deloitte Corporate Finance CEO Phil Colaco.
It’s a point on which M&A professionals can afford to be ambivalent. Another recent rising rate environment—2016 to 2019—was accompanied by an increase in transaction value and volume.
Solomon Partners CEO Mar Cooper told us earlier this year that rate hikes might take a year or more to slow the current boom, anticipating incremental moves to tame inflation.
KPMG polled executives including 350 dealmakers, three quarters of whom work at public companies. Responses came in during November and December.