As a recent Wall Street Journal article noted, there had been as many incorrect projections for 2011 as there had been correct ones. Thus, we will not even venture to attempt a prediction for 2012, short of noting that the three key challenges transferred from 2011 into the new year are the same: a hobbled housing market constraining growth, many debt-ridden consumers continuing to deleverage, and an uncertain Europe impacting the worlds lending markets.
“The good news, however, for our clients on the buy and sell side, will be low interest rates that stay for a while.” says Achim Neumann, President of A Neumann & Associates in New Jersey. “Any one of the three factors mentioned above will have continued downward pressure on interest rates.”
Indeed, many business owners we talked to will experience a much needed reprieve in costs due to lower rates. Such interest rate reductions apply to many different forms of lending, whether it’s for acquisitions, working capital financing, or simply leveraged business expansions.
In addition, very often such lower interest rates translate into the ability of business owners to renegotiate a better lease for their business with their respective landlords which, also, have more flexibility to absorb lower lease revenues.
“On the buy side, the impact is even more significant,” says Neumann “not only will the buyer or investor experience lower costs in financing an acquisition, but the investor will also have more ‘leverage’ in terms of looking at more investments for any given investment amount.”
Naturally, this impact has not been unnoticed. Investors and buyers of mid-sized businesses still outnumber sellers by a margin of 3 to 1. Returns on stocks, bonds and real estate investments remain weak, so most savvy investors are searching for suitable businesses in a highly competitive market.
“All of our three offices in New Jersey consistently receive calls from highly motivated investors and buyers searching for profitable companies to purchase.” says Gary Herviou, Director, Marketing, Central New Jersey “As a matter of fact, the last two sell-side engagements we accepted were matched with a suitable buyer within less than three months.”
With interest rates this low, little change is predicted– and that is our prediction for 2012!