Private Equity Outlook Mid-2025: Cautious Optimism, Credit Concerns, and Tax Talk with Rick Kes of RSM 5-20-25

Summary

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

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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.

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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]

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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]

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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.

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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.

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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.

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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.

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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.

Transcript

[A]

This is Scott Becker with the Becker Private Equity and Business podcast. We're thrilled today to be joined by Rick Kess. Rick is a partner at rsm. RSM is the preeminent sort of mid market private equity consulting, accounting leadership firm. Just a fantastic job they've done in building the practice over a long period of time. Rick joins us regularly to talk to us about trends. He's watching the private equity business. Rick, let's get to it. What is going on in the private equity business today? Our deal starting to happen again? We're. What are you seeing?

[B]

Yeah, I mean, Scott, I think, you know, kind of unfortunately much of the same as, as we've been talking about for the last couple months. You know, I think there's a lot of interest and opportunity out there, but with all that interest in opportunity, there's also, you know, a fair amount of uncertainty in different sectors. Especially, you know, obviously I cover healthcare the closest. You know, there's some uncertainty there with some of the budget reforms that are being discussed. So, you know, I think, you know, there's a lot of interest, a lot of opportunity, a lot of, you know, a lot of excitement, you know, a lot of dry powder, but, you know, a lot of things that are kind of holding people back in terms of moving forward. But, you know, I'm, I'm hoping that, you know, as the temperatures continue to rise that some of that uncertainty sort of quote, unquote, melts away and, you know, that we start to move forward with some deal activity here in the next, you know, two to two to four months or so.

[A]

Let me ask you a question. On Friday, Moody's reported that they downgraded the US's credit a little bit. You know, not to the 600s or the 500s like a personal debt score or credit score, but from aaa to double A1. What impact will that have on interest rates and the interest rate environment in the long run? Or is it not really relevant for the private equity environment or will that have an impact on interest rates and what we see?

[B]

Yeah, it's hard to say, but I think one of the last episodes you and I talked a little bit about the credit market and access to credit and even well capitalized, highly rated organizations. You know, we're having some concerns accessing the debt market. You know, I think this probably just adds some more. Again, for the lack of other words, the proverbial uncertainty as it relates to access to credit. And I think credit, you know, is such an important vehicle for private equity to use to, you know, leverage whether they're going to do a buyout or what have you. But, you know, on the other end, a lot of deals are being executed today using other alternatives, whether it be rollover equity or other things, to kind of capitalize some of the transactions. So, you know, I think it could have some impact. The impact is on, I guess it's a little hard to predict per se, but I'd say, I think to me the biggest concern would be the access to further liquidity for some of these deals that we're hoping to finance.

[A]

Thank you. I know the House is working through a major sort of tax and budget bill. President Trump says it'll be the greatest tax of all time. That might be hyperbole. I'm not an anti Trump person, not a pro Trump person. Somewhere in between, I know I can't be too critical of it because my podcast might get shut down. I say that jokingly. That's a joke for our audience. But, Rick, what are people starting to say about the discussions in the tax bill? Is it too early to tell or are people starting to digest that at firms like RSM and trying to understand the impact?

[B]

Yeah, we had a call this morning, you know, with all the partners of the firm, you know, just listening to some of the perspectives that our Washington national tax leaders have. And, you know, I think there's some discussion in the bill related to, you know, a lot of the things extending what the tax cuts and jobs acts did, you know, in the previous Trump administration, you know, so some of those things would be kind of, I would say, you know, sometimes positive to, you know, from a tax perspective to some of our clients. You know, I think there'll be some changes potentially to the interest deductions. Currently, some of the interest deductions are limited or capped at a certain level for different businesses. So, you know, some of those things I would say are what we're hearing are probably, you know, somewhat business friendly. But obviously, you know, for every push, there's a poll, so to speak, in the tax bill. So, you know, from again, back to the healthcare econ ecosystem, you've got, you know, some negative impacts with Medicaid and some other, you know, potential changes to, you know, subsidies for ACA plans or exchange products that are offered to people that buy their own insurance. So, you know, there's some good and some bad from, from all those perspectives. But, you know, I think all in all, you know, I'd say for the first in particular, in the non health care ecosystem, it could be more positives than negatives. Within the tax bill currently structured.

[A]

Thank you. And take a second. As we get to the second half of the year, almost amazing. What are you most focused on and excited about as we get to the second half of the year, Rick?

[B]

Yeah, I mean, I think. I mean, obviously my perspective is usually time removes uncertainty risks. So hopefully we get more and more time away from, you know, some of the things that we kind of consistently hear about, whether it's tariffs or Medicaid changes or, you know, tax cuts or, you know, tax extenders and things like that. And we kind of learn what the new reality is and then, you know, understand how that's going to impact our businesses, be able to price that into our deal economics and then start making deals. So I guess I hope, you know, for a lot the elapse of time so that, you know, people can start, you know, having less uncertainty and start making some, you know, movement in terms of the deal environment. So I'd say that's probably top of the list. You know, second, but very close to that list is hopefully seeing the Timberwolves advance past the Oklahoma. Oklahoma City Thunder and play in the, in the NBA Finals, ideally against the Knicks, because it would be wonderful to see Karl Anthony Towns come back and play against Anthony Edwards and see how that works. But, you know, I'd say those are the two things that kind of excite me at this point in time.

[A]

Anthony Edwards, an amazing, incredible talent, but even with all his talent, he is still well behind Elon Musk in terms of the effort, where they go head to head. But yes, absolutely, Rick would be excited to see the Timberwolves. Timberwolves perform well. Very few players is exciting to watch as Anthony Edwards. Just a fantastic series coming up. Rick, thank you very much for joining us on the Becker Private Equity and Business podcast. Thank you very much.

[B]

Thank you, Scott.