Welcome back to The Legacy Brief.

Heirly's monthly dispatch on the North American business acquisition market. Data-backed, and worth your time. Here is what we are watching this month.

The Market Pulse

Most private businesses in North America are bought with borrowed money, which means what a buyer can afford to offer depends heavily on what a lender will give them. When borrowing gets cheaper, offers rise. When it gets dearer, they fall. For two years that force has been moving in owners' favour. This month it stopped.

11 consecutive holds. That is the combined record of the two central banks that set the cost of an acquisition across North America, and neither is heading toward cheaper money.

In the United States, the Federal Reserve held its benchmark at 3.50% to 3.75% on July 29. That was the fifth meeting in a row it left rates untouched. The vote is the detail that matters. It was 9 to 3, and all three dissenters wanted to raise rather than cut, the first time since 2016 that three policymakers have broken from the majority in the same direction. The Committee's own June projections pointed to a quarter-point increase before the end of the year.

Canada arrives at the same place by the opposite road. The Bank of Canada held at 2.25% on July 15, a sixth consecutive hold. Five days later the inflation data arrived, and it was softer than anyone expected. Prices rose 2.8% in June, down from 3.2% in May, and the Bank's two preferred core measures averaged 1.85%, the lowest reading since September 2020 and the first below 2% in nearly six years. Those are conditions that would ordinarily invite a cut. Forecasters nonetheless expect the Bank to hold for the rest of the year.

One central bank is under pressure to raise. The other has room to cut and is choosing not to use it. For anyone buying or selling a business, those two paths lead to the same place. The cost of financing a purchase is flat at best across North America, and it may rise. The most common reason owners give for waiting, that they will sell once rates come down, was a reasonable plan for two years. It is now a bet, and the evidence has turned against it.

Not every buyer borrows, and that exception matters more this year than last. Family offices, private investment firms, strategic acquirers and buyers using seller financing are largely unaffected by rate decisions. Flat borrowing costs do not weaken them. They improve their standing, because they are competing against buyers whose ceiling has stopped rising. For an owner, that changes who the strongest bidder in a process is likely to be.

Buyers appear to have worked this out already. The Bank of Canada's Business Outlook Survey, published July 6, found business sentiment deteriorating after three straight quarters of improvement. Investment intentions did the opposite, marking the strongest first half for planned investment since 2022. Sentiment is what business owners say about the economy. Investment is what they commit money to, and they are still committing it.

Which leads to a practical conclusion. The constraint on selling a business right now is not whether buyers exist. They do, they are funded, and they are still buying. What decides the outcome is whether a business is prepared for them, and whether it reaches the small number of buyers who are genuinely the right fit for it.

What We Are Watching

The United States is the side to watch. The clearest signal will come from the Jackson Hole symposium at the end of August, where the Federal Reserve chair speaks before either central bank decides again in September. If US rates do rise, valuations built on the assumption of cheaper debt get revised down rather than up, and the gap between what a buyer could pay two years ago and what they can pay two years from now widens instead of closing.

The Question

This month we asked the advisors and lenders who finance and guide acquisitions: what should an owner or buyer do when the cost of money stops falling?

"If you expect to sell within five years, price against the rate that exists."

Every valuation carries an assumption about what a buyer can borrow. While that assumption was improving, waiting had a logic to it. It does not now. Value the business against today's cost of capital rather than a rate that may never arrive.

"If you are buying for the first time, the lender sets your ceiling before you do."

New buyers usually decide what a business is worth to them and then go looking for financing. In this market the order reverses. Establish what you can actually raise, and on what terms, before you fall for anything. That figure is the real limit on what you can offer.

"If you are buying without borrowing, your position just improved."

Buyers using their own capital, fund capital or seller financing are insulated from rate decisions, and they are now competing against buyers whose purchasing power has stopped rising. Certainty and speed of close are worth more this year than last, which is why a well-matched introduction tends to beat a wide search, and why Heirly works privately rather than publicly.

A Note From Toyin

I have been thinking about how often timing gets discussed as though it were a single decision.

It rarely is. Most owners I speak with are not choosing between selling and not selling. They are choosing between knowing where they stand and not knowing, and deciding from there. The same is true of the buyers I meet, including the ones at the very beginning.

The market will keep moving whether or not any of us have a view on it. What you control is whether you are informed when it does.

If you have been meaning to find out, this is a reasonable month to start.