What a higher-for-longer rate cycle means for mid-market valuations

For most of the past decade, mid-market valuations rose on a tide of inexpensive debt. Multiple expansion did much of the work that operational improvement once had to do. That era has ended.

The new arithmetic

With financing costs structurally higher, the returns that owners and investors expect must increasingly come from growth and margin. Businesses with clear operational plans will command premiums; those relying on leverage will not.

• Cash conversion is becoming a primary valuation driver.
• Buyers are paying for proven, not projected, synergies.
• Pricing power is being scrutinized more closely in diligence.

For owners considering a sale in the next three years, the implication is clear: the value creation plan needs to start now.