On July 21, 2023, the Federal Drive podcast featured Venable attorney Joe Schmelter in an interview regarding high interest rates impacting the M&A Defense Market.
Commenting on whether the higher interest rates dampen the M&A market, Schmelter said, “It does a little bit, particularly for a segment of the buyer market, which is comprised by private equity firms. So, unlike your big strategic buyers, publicly traded integrators that everyone has heard of, the other half of the buyer market are private equity firms and sort of hybrids that are sponsored by private equity. And they finance their deals typically on a one-off basis. So, if there’s an acquisition that a private equity sponsored buyer is going to do, they’re going to have to go out and get financing for that deal. And when interest rates are increasing or higher than they normally are and what credit generally is tightening, and by that, I mean covenants are becoming more difficult, underwriting is taking longer. That means it’s a heavier lift for a private equity buyer. Deals take longer to get done. Offers from private equity may become somewhat less competitive when judged against offers being made by your strategic publicly traded government contractors. So higher interest rates do put a damper. That is certainly a headwind for M&A activity for sure.”