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 with Rick Kes of RSM
Host: Scott Becker
Guest: Rick Kess, Partner at RSM
Release Date: May 17, 2025

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Introduction

In this insightful episode of the Becker Private Equity & Business Podcast, host Scott Becker engages in a meaningful conversation with regular guest Rick Kess of RSM. The discussion delves deep into the current landscape of private equity, examining market sentiment, momentum, and the critical issue of access to capital.

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Guest Introduction: Rick Kess and RSM ([00:00] - [01:38])

Scott Becker opens the episode by welcoming Rick Kess, who provides a comprehensive overview of RSM and his role within the firm.

Rick Kess:
"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." ([00:29])

Rick emphasizes RSM's significant impact, highlighting that their client base represents a little over a third of the U.S. GDP. He underscores the firm's long-standing relationships with private equity companies and their portfolio holdings, attributing RSM's robust market reputation and differentiated relationship management to their sustained success. With two decades at RSM, Rick brings extensive experience in healthcare and private equity management to the table.

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Current Market Sentiment and Trends ([01:38] - [05:18])

Scott transitions the conversation to the recent market dynamics, noting a six-week pause in private equity activity despite public markets nearing a flat year-to-date performance.

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

Rick discusses the impact of recent news, specifically a 90-day pause on certain tariffs with China, and its favorable reception in the markets. He contrasts the transparency of public markets, where data and sentiment are readily accessible, with the opaque nature of private equity markets. Rick conveys a cautiously optimistic outlook among private equity fund managers and portfolio companies, suggesting that positive momentum factors—such as interest rate cuts or a favorable deal environment—could catalyze increased deal flow.

Key Insights:

• Public vs. Private Markets: Public markets offer transparency and real-time sentiment analysis, whereas private equity relies on more discreet and less accessible information sources.
• Cautious Optimism: Despite uncertainties, there is a general sense of optimism that positive changes could reignite private equity activity.
• Momentum Factors: Interest rate adjustments and improved deal environments are seen as potential catalysts for market resurgence.

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Challenges in Private Equity: Margins, Debt, and Access to Capital ([05:18] - [07:16])

Scott shifts the focus to fundamental challenges within private equity, particularly concerning company margins and debt costs.

Rick Kess:
"Even well-capitalized or highly valued companies are starting to have a sense that capital access is not quite what it was." ([04:29])

Rick elaborates on the difficulties companies face in affording high interest rates and maintaining sustainable margins amidst rising debt expenses. He highlights that access to capital has become more constrained compared to previous years, even for companies with strong financial positions. This tightening extends beyond private equity to the broader venture capital landscape, as Scott mentions anecdotal evidence from the TV show Landman, where investment opportunities are diminishing unless companies boast robust balance sheets.

Scott Becker:
"Access to capital is more challenging, particularly unless you have a great balance sheet." ([05:48])

The discussion underscores the ripple effects of constrained capital access across various sectors, emphasizing the importance of financial resilience for companies seeking investment or financing in the current economic climate.

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Public Dialogue and Cultural References ([05:48] - [07:16])

The conversation takes a lighter turn as Scott and Rick discuss popular TV shows like Landman and Mobland, providing a brief respite from the heavy financial topics. Rick shares his appreciation for Landman and its star, Billy Bob Thornton, before mentioning his packed schedule with three children, which limits his time to explore new shows.

Scott Becker:
"Landman and Mobland are two remarkable shows." ([06:43])

While these segments are peripheral to the main discussion, they humanize the conversation and offer listeners a glimpse into the personal interests of the guests.

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Conclusion and Final Remarks ([07:16])

Scott wraps up the episode by reiterating the value of Rick Kess's insights into the private equity landscape. He commends Rick and RSM for their exemplary work in the industry, leaving listeners with a sense of appreciation for the expertise shared.

Scott Becker:
"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." ([07:16])

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Notable Quotes

• Rick Kess on RSM's Impact: "We provide tons of services to private equity companies and their portfolio holdings... we think differentiates us from the competitors." ([00:29])

• Rick Kess on Market Transparency: "The public market is obviously very easy to read... It's a lot harder in the private equity world as, you know, a lot of that stuff is just quite frankly private and so little harder to get to." ([01:56])

• Rick Kess on Capital Access Challenges: "Even well-capitalized or highly valued companies are starting to have a sense that capital access is not quite what it was." ([04:29])

• Scott Becker on Access to Capital: "Access to capital is more challenging, particularly unless you have a great balance sheet." ([05:48])

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Key Takeaways

1. RSM's Role in Private Equity: As a leading provider of middle-market services, RSM plays a crucial role in supporting private equity firms and their portfolio companies, contributing significantly to the U.S. GDP.

2. Market Sentiment: While public markets exhibit more transparency and respond quickly to news, private equity markets operate in a more opaque environment, with sentiment leaning towards cautious optimism amid potential positive momentum factors.

3. Challenges Ahead: Companies in the private equity space face significant challenges related to maintaining margins and managing debt costs, compounded by tighter access to capital compared to previous years.

4. Importance of Financial Resilience: In an environment of constrained capital access, having a strong balance sheet is increasingly vital for companies seeking investment or financing.

5. Human Element: The conversation highlights the importance of balancing professional insights with personal interests, illustrating the multifaceted lives of industry professionals.

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This episode offers a thorough exploration of the current state of private equity, enriched by Rick Kess's expertise and thoughtful analysis. Listeners gain valuable perspectives on market dynamics, the critical issues of capital access, and the broader economic factors influencing private equity today.

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.