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Private Equity Outlook for 2026 with Craig Castelli of Caber Hill Advisors 2-2-26
00:16:34
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This is Scott Becker with the Becker Business and the Becker Private Equity podcast. We try to bring you one to two business or market insight episodes a day, plus typically an interview with a brilliant business colleague or leader. Today we're joined by Craig Castelli. Craig's the founder and CEO of an investment bank. Brilliant, brilliant person. His investment bank does a private equity study survey each year and we're going to spend some time today talking about the results of that survey and what he sees. Let me first give just one bit of backdrop. The huge private equity fund companies. Blackstone's down 20% over the last year. KKR down 30% over the last year. And a lot of people attribute that to yes, great fee income but not enough exits. Craig, with that backdrop, tell us. Well first introduce yourself and then tell us what you're seeing in the private equity world and what this year is likely to look like and what leaders in private equity are saying.
- [01:31]
C
Scott, thanks for having me. It's great to be back on podcast here. I'm Craig Castelli, founder and CEO of Caver Hill Advisors. Scott mentioned we're a lower middle market investment bank. Most of our clients are founders and family owned businesses who are looking to either raise a significant chunk of capital or exit the business. And as a result, especially in the recent times, majority of the transaction partners. On the other side are private equity firms and their portfolio companies work across a variety of industries. Our roots are in health care services and business services, but in recent years we've seen a decent amount of activity in the industrial sectors as well. So with that as a backdrop we can get into what we're seeing specifically on the private equity side of things and, and just the market in general. 2025 was an interesting year to say the least. I like to say I think we lived three business cycles all within a a 12 month period. We, we started the year on fire. Everybody was bullish on what M and A would look like for the year in 2025 and in our pipelines reflected that. I can speak for Ourselves, but also, you know, others who share the same top of funnel activity deals either getting ready to go to market or just beginning to launch were at very, very high levels, almost matching what we saw coming out of the COVID pandemic. And then Liberation Day happened. And whether you had a business that was impacted by tariffs or not, that just injected a huge amount of uncertainty into the market and uncertainty is bad for deals. It's bad because lenders don't want to lend money. It's bad because entrepreneurs aren't really sure how they should react or, or what they should do. And, and we had this pause that lasted almost the entire quarter. Eventually that faded into the background and people got back to business and recognized that it wasn't as bad as initially feared, but you know, slowed things down quite a bit. The second half of the year was, was active. You know, there were a lot of headlines as we saw some, you know, mega deals close, multi billion dollar transactions closed. But in the lower middle market it was, it was still a little bit more sleepy or, or at least it just took a little bit longer to, to build. And so, you know, as we sit here entering 2026, we're very bullish. You know, we see a lot of activity in, in the market. You know, some of it's just the hangover from last year, but I think there's a common sentiment that 26 will be the year we thought 25 will be. I'll, I'll pause there because I think I may have gotten a little bit off topic from where, where you're going with the question, but hopefully that sets the table.
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B
No, no, you're right on track and I think it's a great job selling, setting the table. Take a second Craig, on sort of like the data that goes into your survey. Mid market responses, big funds, small funds, mid sized funds. What do you see in terms of responses? And then of course we'll get to the key question of what are you asking and what, what are the results showing? What are people saying?
- [04:35]
C
Yeah, absolutely. So we send the survey out to our database of private equity investors and no surprise, the respondents tend to match the markets that we're most focused on. So just by the numbers here, 70% of the respondents target platforms in between 1 and 10 million of EBITDA. 25% target platforms between 10 and 25 million. The remaining 5% focus a little bit further up market in the 25 to $50 million range. This is in terms of EBITDA. So we're really talking about the PE firms that invest in the lower middle market, the family founder owned businesses, they're most likely going to be the first institutional partner that business has. And sector wise, the top four sectors these firms are targeting industrial manufacturing, business services, facility services, kind of that, that subset of business services, the blue collar workforce and health care. You know, we did see, represent representation, sorry across the entire spectrum, you know, even with some, you know, real estate, energy and telecom investors chiming in. But you know, by and large it's that, you know, big chunk of the market, the, the old economy, the midwest businesses, the boring, mature, cash flowing companies that private equity really loves.
- [06:02]
B
Thank you so much. That gives us a great sense of who you're responding to, who you're talking to, who you're hearing from and tell us the key questions or what you're asking people. What are you asking people in the PE market?
- [06:14]
C
So we start off by asking them to compare the year that was to their expectations for the upcoming year. So we asked them three questions about 2025. How would they gauge overall market strength, deal volume and valuation multiples? Then we moved into asking them the same three questions about 2026. What are their expectations for for the upcoming year? Just so everybody understands, we, we send this survey out in the fourth quarter. So responses are coming in, you know, around the first part of November of 2025. So everybody has a good gauge at that point of, of how their year is shaping up and what the pipeline looks for for the upcoming year. And then we get into some more deal structure specific type questions and then kind of conclude by asking them about, you know, some of the concerns they have and how they're viewing kind of more specifically what's going to drive activity in the upcoming year.
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B
Thank you. And let's take a moment on that last question of what do people expect this upcoming year? Give us a sense of what you're hearing from investors funds about what they expect this year coming up.
- [07:24]
C
Well, the overall expectation is very much a bull case. 82% of respondents expect 2026 to be a stronger year. Overall, 86% expect to see deal volume increase. And they see this driven essentially by a couple big factors. Dry powder, there's still a ton of capital that needs to be put to work. And when you have a slow or turbulent year like 2025 and you have funds that didn't meet their own objectives for capital deployment, they're that much hungrier, they feel that much more pressure to put money to work. Second biggest factor was macroeconomic growth. And so, you know, there's there's generally a bullish sentiment around how the overall economy is going to perform and when we have a strong growing economy that's generally good for M and A.
- [08:21]
B
Let's hopefully you're in the investment banking business. You do a ton of advising of, of funds and sellers, founder led companies. What's the temperature that you're feeling? Because you have as good a sense of anybody of it. You could do all the surveys you want but bankers really know are things moving? Are things not moving? Are they hearing from people? What's the temperature? What are you seeing out there?
- [08:44]
C
I'll tell you, it's a mixed bag and I feel like we've talked about this before. Let's take you know, one of our sectors, healthcare as an example. There's a lot, there are a lot of companies stuck in private equity portfolios especially on the healthcare services, the physician practice management side of healthcare. And so you know that's created a little bit of a lack of liquidity in certain parts of the market. It's very much sector and company specific though. So if you, let's take the dental space as an example because it's massive and everybody seems to know about it and there are you know, 100 plus private equity backed DSOs out there. If you're just a run of the mill undifferentiated dso, you probably best to take things slow and continue to monitor the market over the next couple months and see what evolves. If you have a true differentiated model that stands out from the fray, the appetite is robust and we've seen that from companies that we have taken to market that can say hey, we don't really compete with the other DSOs. We're in a bit more of a blue ocean. Investors that might otherwise pass are, are throwing out, you know, huge offers for, for businesses like this.
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B
Craig, let me just ask you a question really quickly. There is that like the oral surgery, the implants, the orthodontics, the other areas or can it be general dentistry in specific areas? What, what do you see there in that dental market?
- [10:20]
C
It can be general dentistry if the, the go to market strategy is, is unique and otherwise be specialty. You know, pediatrics and orthodontics are still very, very hot. Especially that you know, combination, you know, as is, as is oral surgery, you know, less so for you know, your traditional bread and butter general dentistry. That, that is just like every other general dentistry practice out there.
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B
And at what point or different times the Medicaid dental practice is really hot in certain states, not other states any temperature on what's happening there.
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C
I think Medicaid reform is a, you know, a new topic that everybody's monitoring. And so, you know, I don't see as much heat behind the Medicaid practices we have in the past that could, you know, all change. But there's a little bit more of.
- [11:13]
B
A wait and see approach happening that makes sense. And talk about the just for a second. I mean, I know there's a ton of work in healthcare technology companies, all kinds of things, healthcare practices. It really differentiates some of the higher price specialties, higher margin specialties. There still seems to be activity, GI, orthopedics, some other areas, dermatology, and then in other areas, generalist and ob gyni and some other areas. It seems like it's really slow and really challenging. You provide some more color on that or flavor on that. As long as we've touched a little bit on practices and so forth.
- [11:52]
C
Yeah. So I think there are a couple factors that are worth highlighting in that area. Number one is what is reimbursement? What's your average case size? What's the profitability of these practices? Your orthopedic and cardiology practices are still very profitable, still benefiting from shifting procedures out of hospitals and into ASCs and the ability for the physicians to participate in the ASC ownership in one way, shape or form. Whereas you look at general medicine, pediatric medicine, obgyn or reimbursement, less profitable, just a little bit less attractive overall based on those dynamics. You also see the advent of technology in a lot of these practices. And how can that drive efficiency and innovation and the practice areas where, you know, you can take advantage of technology are, you know, still shining relative to, you know, those where it has less of an impact.
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B
Thank you. And in terms of the study, anything else that stands out to you from the study this year that you particularly want to note to the audience?
- [13:09]
C
Yeah, I'll highlight a couple things. So, you know, first of all, just on overall market factors, looking back at 2025, we asked what drove deal flow, what really concerned or challenged activity? Interest rates, by and large were viewed as a neutral factor. I think while everybody would love to see interest rates continually lower as it helps our cost of capital, the respondents didn't really cite that as a major headwind. Tariffs are what really stood out as the major headwind last year. Interesting. We asked about their biggest concerns for 2026. Answer number one, by a pretty decent margin, was competition for deals. Answer number three, was rising valuations. If I'm A seller thinking about going to market. These are the answers I want to hear. If the private equity firms are concerned that they're going to have to compete too aggressively and pay too big a price in order to win deals, then I want to throw my hat in the ring and let them compete for me.
- [14:22]
B
Thank you very, very much. Talk for a second. Greg. You've got a laser focus on where to focus your time and energy. One of the smartest people I get a chance to visit with. Where will you focus your energy and focus this year? Where do you see yourself focusing this year and what are you most excited about?
- [14:42]
C
Well, you know, I'm excited about the results of this survey 1. So we're not going to, you know, keep, keep beating that horse. We can move on to some other topics. We, we expanded our team in 2025 with, with a couple really exciting hires. And so you know, I like to spend as much of my time, you know, as possible as, as you know, the manager of this business and, and the leader of the people here and, and you know, the opportunity to help them, you know, grow and evolve and, and do what they do is, is very exciting. One of our, you know, newer members of the team has a, has a buy side background as a lot of us do, but he specifically done buy side advisory for private equity firms almost exclusively for the last decade which is, you know, a service offering that you know, we, we've been hot and cold with over the years. We've pursued opportunistically but not necessarily with a, a dedicated focus. And his name is Brian Steffens. Brian really brings that, you know, institutional knowledge and dedicated focus towards a professional buy side offering and we're seeing some, some good reception towards that in the market. You know, from a sector perspective. He's covered a lot of different areas but spent most of his time in the business services and industrials areas and he's currently helping PE backed landscaping business in the Southeast source acquisitions. He's helping a European manufacturer find a foothold in the US and has a number of other things he's working on. You know, I think strategically as our business grows, you know, to be able to offer more robust buy side services that complements, you know, the sell side offering that we've always had. You know, just, it makes us a stronger business and you know, allows us to, you know, play a larger role in the overall M and A environment.
- [16:45]
B
Thank you very much Craig. Always a pleasure to visit with you. You do tremendous work. Craig Castelli Founder CEO, Caber Hill Advisors just fantastic. Craig, as always, thank you for taking the time with us this morning on the Becker Business, the Becker private equity podcast.
- [17:00]
C
Thank you, Scott. It was a pleasure to be here.
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