How Do Market Cycles Shape Acquisition Timing for Bootstrapped Companies?
For bootstrapped founders, timing an optimal exit is less about personal readiness and more about market alignment. You’ve built a profitable, enduring business without institutional capital—but its ultimate value is determined by one thing: where you are in the M&A market cycle.
At Peak Technology Partners, we understand that for founder-led companies, mistiming an exit by even six to twelve months can cost millions. Unlike venture-backed firms that often exit to meet fund return timelines, the bootstrapped company enjoys a singular advantage: optionality. Knowing when to exercise that option is the difference between a great outcome and a mediocre one.
Part I: Decoding the M&A Market Cycle
The M&A market cycles through periods of expansion (a seller’s market) and contraction (a buyer’s market), driven primarily by two forces: the cost of capital and corporate confidence.
1. The Cost of Capital: The Primary Driver
The most direct influence on technology M&A is the Federal Reserve’s interest rate policy.
Low-Rate Environment: The Seller’s Market
When interest rates are low, capital is cheap—and M&A activity surges. Private equity (PE) firms borrow aggressively to finance acquisitions, and strategic buyers use inexpensive debt to fund growth. Competition for quality assets intensifies, driving up valuations, revenue multiples, and founder-favorable deal terms.High-Rate Environment: The Buyer’s Market
When rates rise, capital becomes expensive. PE financing costs increase sharply, and investors raise their hurdle rates. Acquirers become more selective, prioritizing profitability and cash flow over speculative growth. As a result, valuations compress, multiples fall, and deals slow—conditions that favor buyers.
2. Corporate Confidence and Strategic Drivers
Beyond interest rates, corporate confidence shapes M&A appetite. In periods of economic optimism, strategic buyers pursue bold acquisitions to expand scale or enter new markets. When confidence declines—during recessions or market corrections—dealmaking shifts toward smaller, defensive acquisitions, often targeting essential technologies or distressed assets at discounted prices.
Source Insight: According to PitchBook data analyzed by Grant Thornton, M&A activity closely tracks the cost of capital. As the Effective Federal Funds Rate rose from near zero in early 2022 to above 5% by mid-2023, North American deal volume fell from more than 20,000 transactions in 2021 to roughly half that level.
Part II: The Bootstrapped Advantage in Different Cycles
A bootstrapped company’s focus on profitability gives it a unique advantage across economic cycles, allowing it to perform well during both expansion and contraction—so long as the founder acts strategically.
The Peak of an Expansion Cycle: The Ideal Exit Window
Action: Accelerate your exit timeline.
Why: During expansion phases, acquirers prioritize growth and market share, often overlooking operational imperfections to secure high-growth assets. Your dependable EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) serves as a powerful anchor of stability. Unlike VC-backed companies that trade on speculative future revenue, your consistent profitability builds credibility with both private equity and strategic buyers eager to deploy capital.
The Contraction Cycle: The Flight to Quality
Action: Highlight profitability and capital efficiency.
Why: As market risk rises, investors and acquirers gravitate toward quality, cash-generative assets. Operational discipline and independence from external capital become decisive competitive advantages. While high-burn VC-backed companies grow increasingly desperate, you retain the flexibility to hold out for a fair valuation based on a sustainable multiple of your clean EBITDA.
Key Takeaway: The worst time to begin preparing is after the market has already started to contract. In downturns, deals favor businesses that have completed their due diligence hygiene—clean books, documented IP, and other essentials—and are ready to sell immediately.
Part III: The Peak Technology Partners Difference
Successfully navigating market cycles requires an informed, objective partner—not just an order taker. For bootstrapped founders, we serve as both a strategic guide and a disciplined exit-preparation coach.
We translate the macroeconomic forces outlined above into clear, actionable strategies tailored to your company:
1. Objective Readiness Assessment
Using real-time market data, we determine whether your company should be valued on a revenue multiple (in peak cycles) or an EBITDA multiple (in contraction cycles), and we prepare your financials accordingly.
2. Strategic Positioning
We refine your company’s narrative to align with current market dynamics. When capital is expensive, we emphasize capital efficiency; when capital is abundant, we highlight scalability and growth potential.
3. Process Efficiency
Because exit windows can close quickly—a six-month public-market downturn often precedes a drop in M&A multiples—we ensure readiness by assembling a complete due diligence package. This preparation enables a faster transition from letter of intent to closing, locking in valuation before the cycle turns.
Your story of bootstrapped success deserves to be told in the language of the market. Peak Technology Partners translates your hard-won profitability into maximum value, ensuring you’re positioned to launch your M&A process at the optimal time. The best time to prepare is now—so you’re ready to move decisively when the cycle shifts in your favor.
Sources: Grant Thornton. (2024). Pent-up demand for deals likely to lead to increase in M&A. Retrieved from Grant Thornton.