In today's dynamic economic landscape, companies face the dual challenge of managing higher interest rates and tighter credit conditions. This situation compels businesses to rethink their financial strategies, focusing on balancing necessary deleveraging and crucial investments for future growth.
Citizens Bank’s recent article Aligning Capital with Strategic Plans in a Mixed Market highlights the importance of financial flexibility, especially for middle-market companies. In mixed market conditions, the clarity of financial priorities becomes less evident. Companies must judiciously manage their financial obligations, considering both deleveraging to mitigate higher interest costs and investing strategically to fuel future growth.
Key points include the impact of higher interest rates on corporate debt management, the tightening of lending standards, and the subsequent effects on strategic capital expenditure (capex) and mergers & acquisitions (M&A). The article underscores the need for businesses to stress-test cash flows, optimize working capital, and explore creative financing solutions. Here’s an important quote from the article: As far as sellers go, some middle-market companies may find themselves looking to divest non-core businesses to fund core-growth acquisitions. Among buyers, there could be increasing urgency among private equity firms to resume deal-making after a period of low activity. PE firms face expectations from their investors that they will put committed capital to work, regardless of the market environment.
M&A is very much still a path forward, even in an uncertain market.