Becker Private Equity & Business Podcast: Episode Summary

Title: Private Equity Outlook Mid-2025: Cautious Optimism, Credit Concerns, and Tax Talk with Rick Kes of RSM
Host: Scott Becker
Guest: Rick Kes, Partner at RSM
Release Date: May 20, 2025

Introduction

In this insightful episode of the Becker Private Equity & Business Podcast, host Scott Becker engages in a thought-provoking discussion with Rick Kes, a seasoned partner at RSM. RSM stands out as a leading mid-market private equity consulting and accounting firm, renowned for its robust practice built over years of dedicated service. Rick Kes, a regular contributor to the podcast, shares his expertise on current trends, challenges, and opportunities within the private equity landscape.

Current State of the Private Equity Market

Rick Kes opens the conversation by addressing the present dynamics in the private equity sector. He acknowledges a sustained interest and a wealth of opportunities but also highlights the prevailing uncertainties that temper market enthusiasm.

“I think there's a lot of interest and opportunity out there, but with all that interest in opportunity, there's also a fair amount of uncertainty in different sectors.”
— Rick Kes [00:31]

Rick specifically points out the healthcare sector as an area fraught with unpredictability, citing ongoing budget reforms as a significant factor contributing to the hesitancy among investors. Despite the abundant "dry powder" available, these uncertainties are stalling deal progression. However, Rick remains optimistic that as clarity increases, particularly over the next two to four months, deal activity will resume momentum.

“I'm hoping that, you know, as the temperatures continue to rise that some of that uncertainty sort of 'melts away' and... we start to move forward with some deal activity.”
— Rick Kes [01:32]

Impact of Moody's US Credit Downgrade

The discussion shifts to a recent development where Moody's downgraded the US credit rating from AAA to AA1. Scott probes the potential repercussions of this downgrade on the interest rate environment and, by extension, the private equity sector.

Rick acknowledges the complexity of predicting the exact impact but underscores its significance:

“I think this probably just adds some more... uncertainty as it relates to access to credit.”
— Rick Kes [02:01]

He elaborates that credit access is pivotal for private equity firms, especially concerning leveraged buyouts. The downgrade exacerbates existing concerns about debt market accessibility. However, Rick also notes a trend where firms are increasingly leveraging alternatives such as rollover equity to finance deals, mitigating some of the adverse effects of reduced credit availability.

“The biggest concern would be the access to further liquidity for some of these deals that we're hoping to finance.”
— Rick Kes [03:12]

Insights on the Major US Tax and Budget Bill

Scott brings up the ongoing deliberations in the House regarding a significant tax and budget bill, noting President Trump's contentious remarks about it being "the greatest tax of all time." He humorously hints at potential censorship, setting the stage for a candid analysis from Rick.

Rick shares RSM’s internal discussions and perspectives on the bill:

“Some of those things would be kind of, I would say, sometimes positive to, you know, from a tax perspective to some of our clients.”
— Rick Kes [03:46]

He outlines that the bill contains elements reminiscent of the previous Trump administration’s Tax Cuts and Jobs Act, which could be beneficial for businesses by potentially altering interest deductions. However, Rick also highlights the bill's mixed impact, especially on the healthcare sector, with proposed changes to Medicaid and ACA subsidies that could have adverse effects.

“I'd say from the non-healthcare ecosystem, it could be more positives than negatives. Within the tax bill currently structured.”
— Rick Kes [05:18]

Overall, Rick conveys a nuanced view, recognizing both the opportunities and challenges the tax bill presents to different sectors.

Looking Ahead: Focus and Excitement for the Second Half of the Year

As the conversation nears its conclusion, Scott inquires about Rick’s priorities and areas of enthusiasm for the upcoming months.

Rick emphasizes a desire for clarity and reduced uncertainty, which he believes time will bring. This clearer landscape will enable more informed decision-making and facilitate increased deal activity.

“People can start... having less uncertainty and start making some... movement in terms of the deal environment.”
— Rick Kes [05:27]

In a delightful turn, Rick shares a personal interest outside of private equity—basketball. He expresses excitement about the Timberwolves advancing in the NBA playoffs, humorously mentioning his affection for specific players and matchups.

“I'd say those are the two things that kind of excite me at this point in time.”
— Rick Kes [05:27]

Scott playfully engages with Rick’s sports enthusiasm, drawing a humorous comparison between Anthony Edwards and Elon Musk, which adds a lighthearted end to the episode.

Conclusion

In this episode, Rick Kes provides a balanced and comprehensive overview of the current state and future prospects of the private equity market. He navigates through the complexities of market uncertainties, the implications of credit downgrades, and the multifaceted impacts of legislative changes with clarity and expertise. His optimistic outlook for the coming months, coupled with personal anecdotes, offers listeners valuable insights into both the professional landscape and the human side of industry leaders.

Key Takeaways:

• The private equity market is brimming with opportunities but is currently tempered by sector-specific uncertainties, notably in healthcare.
• Moody's downgrade of US credit introduces additional challenges for accessing debt markets, though alternative financing methods are being explored.
• The pending US tax and budget bill presents a mix of benefits and drawbacks, varying across different business sectors.
• Clarity and reduced uncertainty in the near future are anticipated to rejuvenate deal-making activities.
• Personal interests, such as sports, remain an integral part of industry leaders' lives, providing balance and relatability.

For those seeking to stay informed on private equity trends and business insights, this episode with Rick Kes is a must-listen, offering both depth and breadth in its analysis.