When the buyer is a sponsor, part of your company's price is set in the credit market.

01 What sponsors underwrite

For a business with positive cash flow, part of a sponsor's bid comes out of a financing model: how much debt that cash flow can support, and at what price. It isn't just a quality buyers admire; it's what the loan is underwritten against. Growth still drives what a buyer believes the business becomes; leverageability drives what a sponsor can pay today. Strategics run different math; sponsors run this one.

02 Cost of deal debt, 2023 to 2026

From 2023, the all-in cost of a new sponsor loan fell for two years. Spreads widened from S+474 to S+509 in the second quarter and have held near S+500 since. On September 16 the Fed raised rates a quarter point. What changed is not the level. It's that the direction is no longer something a seller can assume.

03 What it means

Waiting used to be free: the financing behind the next sponsor bid kept getting cheaper, so next year's number was likely to beat this year's. That's no longer the assumption to run on.

A sponsor's leverage shapes what they can pay, although once the deal closes at the agreed price it's their problem, not yours. A dollar at close is a dollar, unless you roll equity into the new company, take part of your price in an earnout, or accept a bid contingent on financing.