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Mergers & Acquisitions: Assess interest rates, recessionary fears

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Q. How will rising interest rates affect the M&A market for HME businesses? 

A. As the Federal Reserve has raised interest rates to help combat inflation, private equity sponsors who utilize debt to finance a portion of their acquisitions have been faced with higher borrowing costs. Debt providers typically price loans off a certain benchmark rate (e.g., LIBOR, federal funds rate, etc.), and as those benchmark rates have risen, the cost of debt to finance acquisitions has increased alongside them. Historically, when interest rates rise and the cost of debt increases, valuation multiples compress.

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