Becker Private Equity & Business Podcast

Host: Scott Becker
Guest: Rick Kess, RSM
Episode: Finding Opportunity in Uncertain Markets: Insights from Rick Kes of RSM
Release Date: April 24, 2025

Overview

In this insightful episode of the Becker Private Equity & Business Podcast, host Scott Becker engages in a compelling conversation with Rick Kess from RSM. The discussion centers around navigating the private equity landscape amidst market uncertainties, exploring both challenges and emerging opportunities. Rick shares his expert perspectives on the current state of the private equity deal and fundraising markets, sector-specific resilience, and the strategic role of private equity in enhancing portfolio stability.

Current State of the Private Equity Market

Rick Kess opens the dialogue by addressing recent concerns highlighted in a Wall Street Journal article, which portrays the private equity market as being in a precarious position due to trade wars and other economic headwinds.

Rick Kess [01:13]: "I do think that there are pieces of positivity out there when it comes to private equity... there's still money to be spent, there's still investors that want to get into new sectors or new markets."

Despite acknowledging the prevailing uncertainty, Rick emphasizes that such conditions also present unique opportunities for value creation. He points out that assets performing at high operational levels continue to attract investment, underscoring the importance for businesses to enhance efficiency and asset quality to remain attractive to potential investors.

Opportunities Amid Uncertainty

Scott Becker links Rick's observations to real-world deal-making activities, noting the enthusiasm among private equity funds to pursue mid-sized deals aimed at growing EBITDA even in challenging environments.

Scott Becker [03:18]: "There are some glimmers of hope out there and there are people wanting to put money to work... an insane amount of money to be put to work..."

Rick concurs, highlighting that while market uncertainty breeds anxiety, it simultaneously creates openings for strategic investments, particularly in sectors with lower demand elasticity such as healthcare services.

Rick Kess [04:03]: "Things that have relatively less demand elasticity, so things like healthcare services... there are areas of opportunity."

Sector-Specific Resilience: The Case of Med Spas

The conversation delves into the resilience of specific sectors, with Scott bringing up the med spa and plastic surgery industries, which some perceive as recession-resistant due to their status as discretionary spending items that individuals prioritize even during economic downturns.

Scott Becker [05:14]: "Is there a feel for that on recession resistancy or not?"

While Rick is cautiously optimistic, he admits a lack of detailed data on med spas but suggests that services commanding high premiums, like those in the med spa sector, may withstand severe recessions unless economic conditions deteriorate drastically.

Rick Kess [05:14]: "There are some fact patterns there that makes sense to me... it would take a pretty drastic recession to impact... desire to receive those services."

Private Equity's Role in Portfolio Stability

The discussion shifts to the strategic importance of private equity for institutional investors, particularly in providing stability amidst the volatility of public markets. Rick underscores the value proposition of private equity in offering long-term growth and minimizing portfolio volatility.

Rick Kess [06:36]: "Private equity group LPs... involved in private equity to try to minimize the volatility of the public markets."

Scott raises a critical point about the inherent illiquidity in private equity investments and the challenges in valuing private assets compared to publicly traded ones. He questions whether private equity can genuinely deliver the promised stability and growth during uncertain times.

Scott Becker [07:44]: "They're supposed to revalue all the time... it's very hard to judge as a private equity investor where your capital is really at compared to the public markets."

Rick responds by reinforcing the long-term value that private equity has historically provided and suggests that the current environment is an opportunity for private equity firms to demonstrate their ability to balance and enhance investment portfolios.

Rick Kess [08:30]: "Private equity has been telling limited partners for a long time... now is another way to show them that... this is an asset class that can help balance your portfolio in these relatively uncertain times."

Conclusion

As the episode wraps up, Scott reiterates the dual nature of the current market—marked by uncertainty and hesitation, yet brimming with latent deal-making potential. Rick's insights provide a nuanced understanding of how private equity can navigate and capitalize on these dynamics, reinforcing the sector's enduring relevance and adaptability.

Scott Becker [09:06]: "Rick, I want to thank you for joining us again... You're spectacular."

Rick expresses his gratitude, leaving listeners with a reaffirmed perspective on the resilience and strategic importance of private equity in today's volatile market landscape.

Key Takeaways

• Navigating Uncertainty: Market uncertainties, such as trade wars and regulatory changes, present both challenges and opportunities for private equity investors.
• Operational Excellence: High-performing assets with strong operational foundations remain attractive targets for investment, emphasizing the need for businesses to enhance efficiency and quality.
• Sector Resilience: Certain sectors, like healthcare and potentially med spas, may exhibit resilience against economic downturns due to their essential or premium nature.
• Portfolio Stability: Private equity plays a crucial role in providing long-term growth and stability to investment portfolios, especially amidst the volatility of public markets.
• Valuation Challenges: The illiquidity and infrequent revaluation of private equity assets pose challenges in assessing investment performance compared to publicly traded counterparts.

Notable Quotes

• Rick Kess [01:13]: "There's still money to be spent, there's still investors that want to get into new sectors or new markets."
• Scott Becker [03:18]: "There's an incredible amount of deals that are teed up to go to market and an insane amount of money to be put to work."
• Rick Kess [06:36]: "Private equity... involved in private equity to try to minimize the volatility of the public markets."
• Rick Kess [08:30]: "This is an asset class that can help balance your portfolio in these relatively uncertain times."

Final Thoughts

This episode offers valuable insights for private equity professionals, investors, and businesses looking to understand and leverage the dynamics of uncertain markets. Rick Kess's expertise sheds light on strategic approaches to deal-making, sector selection, and portfolio management, underscoring the enduring significance of private equity in fostering economic resilience and growth.