Becker Private Equity & Business Podcast: Detailed Summary

Episode Title: Private Equity Sentiment, Market Momentum & Access to Capital
Host: Scott Becker
Guest: Rick Kess, RSM
Release Date: May 17, 2025

Introduction

In this episode of the Becker Private Equity & Business Podcast, host Scott Becker welcomes returning guest Rick Kess from RSM. Rick delves into the current landscape of private equity, market momentum, and the accessibility of capital in today's economic climate.

Guest Background and RSM Overview

Scott begins by inviting Rick to introduce himself and provide an overview of RSM’s role in the private equity sector.

Rick Kess explains, “[RSM] is the leading provider of services to the middle market. So we are the fifth largest professional service firm in the U.S., very focused on companies around $100 million to about $5 billion of revenue.” [00:29]

He emphasizes that RSM represents a significant portion of the GDP through its client base and has established a robust reputation and infrastructure for managing private equity relationships over the past two decades. Rick mentions his extensive experience within the firm, particularly in healthcare and private equity management.

Market Sentiment and Momentum

Scott notes that the public markets have shown signs of rebounding and observes a recent pause in private equity markets. He asks Rick for his perspective on the potential rebound and future movement.

Rick Kess responds, “I think overall positivity is going to help push that ball forward and start to gain momentum and speed and have it go down the hill and start the deal flow volume that I think we've all been waiting for for the last 18 months or so.” [01:56]

Rick highlights the impact of recent positive news, such as the 90-day pause on tariffs with China, which has buoyed market sentiment. He contrasts the transparency of public markets with the private equity sphere, where data is less accessible. Despite the cautious optimism prevalent among fund managers and private equity groups, Rick believes that small positive changes—like interest rate cuts or a favorable deal environment—could significantly accelerate market momentum.

Challenges in Private Equity: Margins and Debt

Scott underscores the ongoing concerns regarding company margins and the cost of debt, questioning whether the recent public market gains translate to improved margins or reduced interest rates for privately held companies.

Rick Kess concurs, stating, “One thing is affording the interest rates, you know, just being able to cash flow it and or you know, produce, you know, sustainable margins including interest expense.” [04:29]

He elaborates on the difficulties companies face in managing interest expenses and maintaining sustainable margins. Additionally, Rick points out that access to capital remains a significant hurdle, even for well-capitalized or highly valued companies. The availability of bank financing is not as robust as it was three to four years ago, making it challenging for businesses to secure additional capacity when needed.

Access to Capital and the Venture Landscape

The conversation shifts to the broader investment environment, with Scott mentioning the tightened venture capital landscape and sharing an anecdote about the TV show "Landman."

Rick acknowledges the difficulty in accessing capital, noting that even established businesses are struggling to obtain financing. He adds a personal touch by discussing his enthusiasm for "Landman," praising Billy Bob Thornton’s performance and the show's portrayal of investment challenges.

Scott Becker observes, “Access to capital is more challenging, particularly unless you have a great balance sheet.” [05:48]

This highlights the increased scrutiny and higher standards investors are applying, making it imperative for companies to maintain strong financial health to attract investment.

Public vs. Private Market Transparency

Rick elaborates on the differences between public and private markets, emphasizing the ease of obtaining data and insights in public markets through platforms like CNBC or Bloomberg.

Rick Kess remarks, “The public market is obviously very easy to read... It's a lot harder in the private equity world as you know, because, you know, a lot of that stuff is just quite frankly private and so little harder to get to.” [01:56]

This lack of transparency in private equity makes gauging market sentiment more challenging, necessitating reliance on limited data points and close relationships with fund managers and portfolio companies.

Conclusion and Final Thoughts

As the discussion wraps up, Scott and Rick briefly touch upon other interests, such as TV shows, highlighting the importance of balancing professional insights with personal interests.

Scott concludes by commending Rick and RSM for their expertise and valuable contributions to the private equity sector.

Notable Quotes

• Rick Kess on RSM’s Role:
  “We are the leading provider of services to the middle market... very focused on companies around $100 million to about $5 billion of revenue.” [00:29]

• Rick Kess on Market Momentum:
  “Overall positivity is going to help push that ball forward and start to gain momentum and speed...” [01:56]

• Rick Kess on Interest Rates and Margins:
  “One thing is affording the interest rates... or produce... sustainable margins including interest expense.” [04:29]

• Rick Kess on Public vs. Private Markets:
  “The public market is obviously very easy to read... it's a lot harder in the private equity world.” [01:56]

Key Takeaways

1. RSM’s Leadership: RSM plays a crucial role in servicing the middle market, managing a significant portion of the GDP through its client base in private equity.

2. Market Sentiment: Recent positive news has improved market sentiment, but the private equity sector remains cautious due to limited data transparency compared to public markets.

3. Challenges: Companies face ongoing challenges with maintaining margins and managing debt, compounded by tighter access to capital.

4. Investment Environment: The venture capital landscape remains stringent, requiring companies to have strong financials to attract investment.

5. Transparency Gap: The private equity market's lack of transparency makes it harder to assess trends and sentiments, relying instead on limited insights from fund managers and portfolio companies.

This episode provides valuable insights into the current state of private equity, highlighting both opportunities and challenges in a fluctuating market environment. Rick Kess's expertise offers listeners a nuanced understanding of the factors influencing private equity momentum and the critical importance of access to capital.