Becker Private Equity & Business Podcast
Episode: Private Equity in Transition: Market Shifts, Growth Strategies & Fiscal Headwinds with Matt Wolf of Elliott Davis
Release Date: May 27, 2025

Introduction

In this insightful episode of the Becker Private Equity & Business Podcast, host Scott Becker engages in a thought-provoking conversation with Matt Wolf, a distinguished leader at Elliott Davis. Matt brings his extensive expertise in private equity and healthcare, shedding light on the current transitions within the private equity landscape, market shifts, growth strategies, and the looming fiscal challenges. This episode delves deep into the evolving dynamics of private equity amidst global financial uncertainties and explores strategic adaptations necessary for sustained growth.

1. Navigating Global Financial Uncertainty

Matt Wolf initiates the discussion by addressing the pervasive uncertainty in global financial markets. He highlights the critical role of treasury auctions and bond investors in assessing the fiscal health of governments, notably the United States. This scrutiny directly impacts interest rates and, consequently, the cost of capital.

Matt Wolf [01:20]: "The level of uncertainty in global financial markets as bond investors assess various governments, including the US's ability to pay for their obligations and what that's doing to interest rates and what that's doing to cost of capital."

This environment of uncertainty poses significant implications for private equity firms, influencing their investment strategies and operational decisions.

2. Sustained High-Interest Rates and Their Implications

A central theme of the conversation is the expectation that interest rates will remain elevated for an extended period. Matt emphasizes that this trend is not unexpected but has profound effects on private equity operations.

Matt Wolf [01:45]: "Interest rates will remain higher for longer, which I don't think is news to many."

Higher interest rates increase the cost of capital, making leveraged acquisitions more expensive and challenging. This scenario forces private equity sponsors to reassess their strategies, particularly the viability of add-on acquisitions versus organic growth.

3. Shift from Add-On Acquisitions to Organic Growth

Scott Becker builds on Matt's insights by observing a noticeable shift from add-on acquisitions to a premium on organic growth within the private equity sector.

Scott Becker [04:05]: "The era of add-ons will come back, but in the current moment it does seem that there's a bit of a softness on people driving everything towards add-ons for sure."

Matt concurs, noting that private equity firms are increasingly prioritizing de novo growth strategies over add-on acquisitions due to the higher costs and reduced margins associated with the latter in a high-interest-rate environment.

Matt Wolf [04:59]: "We're seeing that sort of debt discipline manifest itself... Changing the way... we look at deals, the way they underwrite deals."

This strategic pivot underscores a broader trend where firms aim for sustainable, organic expansion rather than leveraging debt-heavy acquisitions that may not yield proportional returns.

4. Challenges in the Lower Middle Market and Founder-Owned Businesses

The discussion delves into specific market segments, particularly the lower middle market, where the demand for businesses is diminishing. Matt highlights the struggles faced by founder-owned businesses, especially those run by older generations looking to retire.

Matt Wolf [02:30]: "Lower middle market as the demand for some of these businesses, especially even founder-owned businesses reduces and that will continue to bring multiples down."

This decline in demand results in lower valuation multiples, posing challenges for business owners seeking exits and impacting the broader healthcare and senior care sectors due to shifting demographic trends.

5. Fiscal Headwinds and the Growing Deficit

A significant portion of the conversation centers on the United States' escalating fiscal deficit and its long-term implications. Matt and Scott discuss the projections indicating the deficit soaring to $40 trillion, a figure unprecedented in recent history.

Matt Wolf [06:08]: "A 6% of GDP fiscal deficit in the US... What does that mean as we look down, down 5, 10, 20 years in the future?"

Scott reflects on the challenges of managing such a deficit, contemplating whether the economy can sustain growth to mitigate the deficit or if debt reduction measures would necessitate economic contractions.

Scott Becker [06:41]: "Nobody wants to do that because that could lead to a recession. What a fascinating situation."

The looming fiscal imbalance raises concerns about potential inflationary pressures and the sustainability of current economic policies, adding another layer of complexity for private equity firms planning for the future.

6. Long-Term Outlook and Strategic Adaptations

Addressing the long-term prospects, Matt underscores the necessity for sustained economic growth to manage the fiscal deficit. He questions the sources of future growth and the strategies private equity firms must adopt to thrive in this challenging environment.

Matt Wolf [07:11]: "Where is the growth going to come from? What is the growth story?"

He emphasizes that without robust growth, the economic landscape could face persistent inflation, making strategic adaptations crucial for continued success in the private equity realm.

7. Insights on Elliott Davis

As the conversation wraps up, Matt provides an overview of Elliott Davis, positioning it as a premier consulting, audit, and tax firm based in the Southeast with a national clientele. The firm specializes in serving core middle and lower middle market clients across various industries, offering nimble and expert support tailored to the evolving and challenging operational environment.

Matt Wolf [07:30]: "Elliot Davis is the premier consulting, audit tax firm based in the Southeast, serving clients nationally... helping grow businesses in our new evolving and challenging operating environment."

Matt's emphasis on Elliott Davis's collaborative approach with sponsors and operators underscores the firm's commitment to fostering growth and navigating the complexities of the current market landscape.

Conclusion

This episode of the Becker Private Equity & Business Podcast provides a comprehensive analysis of the current transitions in the private equity sector, highlighting the interplay between global financial uncertainties, sustained high-interest rates, and strategic shifts towards organic growth. Matt Wolf's insights offer a nuanced understanding of the challenges and opportunities within the lower middle market and the broader economic implications of a growing fiscal deficit. As private equity firms navigate these turbulent times, the dialogue underscores the importance of strategic adaptation and sustainable growth to ensure resilience and success.

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