What Higher Rates Changed for Sellers

This is Loren's second appearance on Anne's show, roughly eighteen months after the first. Where that conversation covered how a sale works, this one is about what has shifted since, and quite a lot has.

Rates stayed high, and that changed the process

Interest rates had already risen by the time of the earlier episode, but they have stayed stubbornly elevated, and that has altered how deals get done rather than simply making them harder.

SBA lending is still flowing, and Loren is careful to say so, but the rules have been tightening and shifting. He describes it as a moving target, with changes arriving at a pace that keeps everyone adjusting. One rule change around equity rollovers landed roughly two weeks before the episode was recorded.

What's selling well, and what isn't

The most striking part of the conversation is how sharply fortunes have reversed in certain sectors.

E-commerce has lost substantial value, particularly anything Amazon-based. Tariffs, import exposure, and cost of goods are part of it, but Loren points to sentiment as much as arithmetic. Buyers who were competing for Amazon businesses a couple of years ago have become wary of them, with some private equity groups avoiding the category altogether. Exceptions exist, but the enthusiasm has drained out of it.

Auto transmission rebuilding has gone the other way, and the reversal is instructive. Two years ago a buyer would have argued the price down on the grounds that everything was going electric. Now, with tariffs and used car prices pushing people to keep their vehicles longer, those businesses are in demand.

Also doing well: businesses using American-made steel, non-emergency medical transportation, which Loren notes is largely insulated from anything happening on the macro stage, and asbestos remediation. And the category that keeps proving itself is service businesses, HVAC among them, which have held up through every shift described in the episode.

Why more sellers are keeping a piece

The biggest change in how deals are structured is that sellers are increasingly rolling equity, retaining fifteen or twenty percent of the business rather than selling outright.

There are two reasons Loren recommends it. The first is immediate: in the current market, rolling equity usually means more cash at closing, because the alternative is a deal weighted toward seller notes and other structure. The second is the longer game. There are buyers who are genuinely good at scaling companies, and an owner who hands over the reins while keeping a stake and a board seat can see a second exit in three to five years that is as large as the first, or larger.

There is also a leverage effect that surprises most sellers. Because the buyer typically puts debt on the business, the equity you end up holding can exceed the money you left behind. Leaving ten percent of the purchase price in the deal might translate into a materially larger percentage of the company's equity.

What Loren finds most interesting is how sellers describe it afterwards. Owners he pushed toward rolling equity have told him, more or less universally, that holding ten or fifteen percent feels like owning a stock rather than running a business. They still care about it, they still watch it, but it no longer sits on their shoulders. And if the business did collapse, they would still have eighty-five or ninety percent of their money.

It changes the dynamic with the buyer, too. Every seller says their business is in good shape. A seller willing to leave fifteen percent on the table is backing that claim with their own money, which builds a kind of goodwill that is hard to manufacture any other way.

A buyer's market, but only if you have the cash

Asked to pick, Loren says it is more of a buyer's market, with an important qualification: only for buyers who can actually get the financing or write the cheque.

The maths behind that is worth understanding from either side of the table. Take a business producing a million dollars in annual profit. Debt service on an acquisition like that used to run perhaps three or four hundred thousand a year, leaving real room to pay seller notes, hire, and invest in growth. At current rates that figure is closer to six or seven hundred thousand, before tax, which leaves the new owner operating much closer to the edge.

This is where Loren wants sellers to extend some imagination. An owner may think that a dip from a million in profit to eight hundred thousand hardly matters, since the buyer is still making good money. In the new arithmetic, that buyer may be underwater. Understanding what the person across the table is actually carrying makes for better negotiations and better outcomes.

He also points out the flip side for buyers. Paying more in interest now is painful, but if rates ease in a few years and the business survives, that buyer can refinance and will have acquired the company at a price they could not have touched a few years earlier.

How deal structures have adapted

Seller financing has become more common, and Loren notes it is not purely a concession. If you believe in the buyer, carrying part of the price can earn a reasonable rate of interest, and being paid over time can open up tax planning that a lump sum does not.

Earn-outs are the structure sellers resist most, and the objection is a fair one: why should part of my payment depend on decisions I will no longer be making? Loren's response has been to change how they are built. Instead of requiring fifteen or twenty percent annual growth to reach the agreed number, he now writes them so the business simply has to hold roughly steady, or decline by less than ten percent. Sometimes he inverts them entirely, structuring the earn-out as a bonus above the asking price rather than a penalty below it.

He also makes an argument about earn-outs that cuts against the usual suspicion. No buyer actually wants to avoid paying one. An earn-out being paid means the business is performing. A buyer who manipulated the numbers to dodge it would damage their relationship with a seller they likely still need, and would have to live with the staff finding out. In practice, earn-outs go unpaid when things have genuinely gone wrong.

Who is buying matters more than what they're paying

Loren has always weighted the character of the buyer heavily. He weights it more now.

Part of that is the equity rollover itself. If you are keeping a stake, your outcome is tied to this person for years. But he frames it more broadly: in an uncertain market, with rates and tariffs and regulation all moving, what you need most from the other side of the table is trust. He mentions a transmission business currently fielding a number of offers, where he is paying more attention to who is making them than to the figures attached.

If you're one to four years out from selling

Two pieces of preparation come up, and both take time, which is why the question is worth asking early.

The first is clean books. It may be worth paying somewhat more tax for a year or two, because legible financials pay for themselves at sale.

The second is building a management team, and this episode adds a detail worth knowing. If you are essential to the business and drawing a salary, a valuation cannot simply add that salary back, because the work still has to be done by someone. If you pay yourself five hundred thousand and the role is genuinely worth a hundred and fifty, only the difference gets adjusted. If you have a manager running day to day, such that you could disappear for a month or two, your whole salary can be added back.

The multiple may come out similar either way. What changes is who turns up. A business that does not depend on its owner attracts many more offers and real competition between them, where a business with obvious key man risk gets a thinner field. It also shortens how long you are expected to stay on after closing.

What he looks at before taking a listing

Two things stand out in Loren's screening, and both are worth knowing if you are preparing a business for sale.

The first is whether an owner has been squeezing the business to make the numbers look good. It is fairly obvious when profit has been maximized at the expense of reinvestment, and it works against you rather than for you.

The second is free cash flow as distinct from profit. A business can show two million in profit on its profit and loss statement while spending a million and a half a year on vehicles through the balance sheet. Capital expenditure of that kind does not appear in the profit figure, but it absolutely affects what the business actually produces. For equipment-heavy companies, buyers will look at this closely.

Where the multiples sit

The range has not moved. In roughly ninety percent of cases, a business sells for three to seven times adjusted net profit. What has changed is where individual businesses land within it.

As a rough guide, a company earning six or seven hundred thousand is likely to sell somewhere around two to two and a half million. That framework applies to most businesses under fifty million in revenue and under four or five million in EBITDA. Above that, the numbers rise and the analysis gets considerably more nuanced.

Multiples of ten or eleven times do exist, generally for software or for businesses with strong growth and recurring revenue. Those transactions tend to look different in kind: the owner rolls substantial equity, stays on to operate, and is really looking for a growth partner rather than an exit.

For more on how valuation works and what happens during a sale, see our recap of Loren's first conversation with Anne.

Where he sees room to grow

Asked where the gaps are, Loren points to longevity and the med spa space around it. Interest in health span, performance, and treatments like peptides and hormone therapy has climbed steadily, and the cost is still high enough to keep it relatively exclusive. He expects that to change quickly, and thinks the category could be many times its current size within a couple of decades.

The episode also includes a tour of the stranger businesses crossing his desk: a staffing company able to put hundreds of workers on the ground in a new state within days, a manufacturer that builds the floats and characters for theme parks worldwide, escape room builders, and a helicopter tourism operator.

On AI, and on buying a business young

Loren is using AI in his own work, recording calls with permission and generating follow-ups from them, and he is building software to manage the stretch between a signed letter of intent and money in the bank. That stretch, with its document collection and legal, financial, and insurance diligence, is where transactions die, and it is the problem he is trying to solve.

On young buyers, he is encouraging and blunt in equal measure. Buying a business often does make more sense than a corporate job, particularly as AI reshapes white collar work, and he notes that a business declining twenty percent is far less frightening than losing the job you have held for twenty years. But he sees a lot of twenty-two-year-olds with money from their parents and a weekend seminar behind them who are not ready. Knowing how to read a profit and loss statement, handle receivables and payables, sell, and talk to people is not optional.