Private Equity Sentiment, Market Momentum & Access to Capital with Rick Kes of RSM 5-17-25

Summary

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

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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]

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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.

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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.

Transcript

[Scott Becker]

This is Scott Becker with the Becker Private Equity and Business Podcast. Thrilled today to be joined by regular guest Rick Kess. Rick talks us regularly about issues he's watching in private equity and trends he's seeing. Rick, let me ask you to take a moment to tee yourself up, tell us a little bit about RSM and about yourself. Then we'll talk a little bit about what trend you're watching currently, whether the market's rebounding, the trade thaws are going to help the private equity markets.

[Rick Kess]

Yes. Scott, thank you. Yeah. For those of you who aren't familiar with rsm, we are 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. So big swath of the GDP, roughly about a little over a third of the overall GDP is represented in that client base. So, you know, we provide tons of services to private equity companies and their portfolio holdings due to the fact that many of them kind of sit in the middle market and we have been doing so for, for a very long time and build a pretty robust both brand reputation in the market as well as just kind of infrastructure of managing our private equity relationships in a way that we think differentiates us from the competitors. You know, me, myself, I've been at the firm about 20 years, served in many roles within the industry of healthcare and overall just private equity related management. So glad to be part of the conversation and you know, talk a little bit about what's going on and what we're seeing.

[Scott Becker]

Thank you so much. So the markets have been rebounding recently. They're almost back to flat year to date. The public markets, literally it feels like for the last six weeks the private equity markets have been on sort of a pause. What is your sense of how those are going to start rebounding or moving? Any thoughts on that?

[Rick Kess]

Yeah, I mean, obviously with the news that broke this morning about, you know, a 90 day pause on terror or certain tariffs with China, I think, you know, that's interesting news for sure. And I wasn't surprised to see the markets react in a favorable fashion to that. You know, I do think like we've talked about before, Scott, that, you know, the public market is obviously very easy to read. You know, it's very easy to obtain data about. It's very easy to kind of get insights you can pop on CNBC or Bloomberg Television or whatever you want to watch and get a lot of great intel and kind of the sentiment of the street if you will. 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. And you know, I think we spent a lot of time obviously with fund fund managers, you know, people within private equity groups, people at the portfolio holding level. You know, I think the overall sentiment is that a lot of them are kind of cautiously optimistic and they've been that way for a long time. I think we all see a lot of the, you know, data points, whether it be dry powder or hold periods or other things where we start to think, well, if we just get a couple nice, you know, momentum changes, whether it's interest rate cuts or you know, good deal environment or you know, any little thing that could help, you know, push the, the ball down the hill. Once that ball starts, I think a lot of people are hoping that it keeps rolling. And you know, I think that there's some truth to that. So I think, you know, the news that broke today is great. You know, I think it pushes people into a positive sentiment overall whether even though, you know, more probably from the public markets, but 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.

[Scott Becker]

Thank you. And at the end of the day, margins and debt and the cost of debt are still very important. So a company's margins performing and are the interest rates going to be too high or not are still very, very important. And so to your point, even though the public markets explode upward today, that doesn't mean that margins have gotten better for a lot of privately held companies or that interest rate costs are yet down where there makes it easier to buy things with financing.

[Rick Kess]

Yeah, very much so. And I think, you know, the other thing that sounds to be a bit of a challenge is even, you know, 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. But on top of that it's even just access to capital sometimes can be really challenging for some of these businesses. Even well capitalized or highly valued companies are starting to have a sense that capital access is not quite what it was, you know, maybe you know, three, four years ago or the last time they went to the bank and asked for some additional capacity. So you know, I do think that continues to be an interesting environment, you know, from a, from a bank financing perspective.

[Scott Becker]

Well, and it's interesting you say it and that the venture world is also a little bit tighter on investing. That's been for a couple years from what I could tell. You know. And on top of that, anecdotally I watched Landman this week. The latest episode or one of the latest episodes and they're one of the wildcat drillers was having a hard time getting investment as well. And I say that somewhat facetiously, but it is telling you the times that access to capital is, is more challenging, particularly unless you have a great balance sheet.

[Rick Kess]

Yeah, yeah, that's very, very true. And it's got great, great taste in TV shows. I love Landman. Billy Bob Thornton is one of, one of the most talented actors of our time. He's just crazy how well he can kind of adapt into that role. It's quite interesting compared to where you see from him kind of in his non character roles. So that's a great show. I very much enjoy that show.

[Scott Becker]

No, a crazily talented, talented actor and just great, great watching. And I'll ask you another question up that vein as well. Have you watched the show Mobland? Have you watched this show?

[Rick Kess]

I have not yet got to that show. It's on my list. It's definitely not on my list. But as you know, I have three kids under the age of 14. They're all boys, they're all busy. So my ability to watch multiple shows at one time starts to get a little compressed. So I'll have to, I'll have to add that into the queue or bring it up close to the top of the queue for sure.

[Scott Becker]

Well, in, in addition to Landman, Landman and Mobland, those are two remarkable shows. It is even more helpful for you, your point on the difference in the public markets and the transparency there versus the lack of clarity. What's going on the private equity markets is so helpful and so telling. But Rick, fascinating to watch and always fantastic to visit with Rick Kess, brilliant partner from rsm. The best in the business and what they do. Rick, thank you so much for joining us today on the Becker Private Equity and Business podcast.

[Rick Kess]

Thank you, Scott.

[C]

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