Deal Surge Nears $4 Trillion

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00:00I think it's a little bit of both, and as you pointed out, deal value is up materially.

00:04Deal volume is not up that much, and so what we've seen in the past, when the M&A market recovers,

00:10the mega deals, the value, the larger value deals happen first, and then it works its way more

00:15into the private capital market. So I think some of this is the stock market's at an all-time high,

00:21public companies are at a point where they don't have the organic growth to necessarily sustain

00:25those multiples, and they have to go out and buy growth. So I think that's driving a lot of the

00:28mega deals, which you see in the deal value. I think what it's starting to do, though,

00:33is work its way down to the private capital markets where you have a backup of deals given the low

00:39level of activity there. So that's adding to, I mean, when we talk to corporates, to leaders,

00:45to CEOs, they say they just have more confidence due to the regulatory environment. It's much easier

00:53and at least not getting worse, I think is what Ken Griffin said. So the private capital aspect adds

01:01to that to sort of amplify the M&A that we're seeing.

01:05I think that's true. I think we are in an administration that is much more M&A friendly

01:10here in the U.S. And I think the other thing you're seeing is, you know, in the private equity

01:17world, in the private capital markets, the high quality businesses, the A assets or the A plus assets,

01:22those have traded just fine over the last three or four years. What really haven't traded at all

01:27are the deals bought at the peak of the market that haven't performed well. And I think this year,

01:32unlike 23 and 24, we're starting to see some of those deals come to market and get done,

01:38where the value gap has the buyers and sellers are able to meet, the sellers are saying, listen,

01:43I got to get rid of this. I've got to put new money to work. I've got to move on. And so that is

01:48adding to an improving M&A market. I don't think we're in a great M&A market yet overall.

01:53I think the mega deals are, but we are clearly in an improving M&A market.

01:56Rob, it kind of reminds me of what Scott Kleiman of Apollo told Matt and I, that a lot of these

02:01expensive deals are still making their way through the system. And because of that,

02:05things will be slow. So if a lot of those were done in 2021 and 2022, you're looking at an

02:10investment horizon where you really don't see the bulk of that come to market next year or the year

02:15after, Rob, when they do, just given how expensive a lot of these companies are,

02:20is it going to be painful? Are we talking about funds taking a big hit on valuations when their

02:25hands are finally forced to sell these things?

02:28I think we are going to see some of that. And you're starting to see these come out now.

02:33And I think the hope and maybe the hope and the prayer with some private equity groups is my stars

02:38can offset these things. And if I can sell enough of my stars, then I can start bleeding out some of

02:43these deals that I overpaid for. But as you point out, we, I think at some point, I think we felt

02:50this way too, it was going to be like the dam breaking loose that at some point, these businesses

02:53are held so long, they just have to come to market. I don't think that's going to happen. I think

02:57what you're seeing is what you're seeing now. You're starting to see that open up. You're

03:01starting to see private equity sell some of these not at great returns, but they can show that the

03:06fund overall, I think some funds, if you don't have the stars, and if you put too much capital to work

03:11at the peak of the market, you're going to see some of those funds go away. But you know, a private

03:15equity fund going away is like turning an oil tanker. It takes a long time. But I think there

03:21is going to be a shakeout. And there's going to be some winners and losers over the next several

03:25years in the private capital markets.

03:26Do you see any deals where Danny and I have been talking about this FT piece on OpenAI, which said

03:33they're doing some deals without investment bankers or lawyers. And, you know, the idea is they have

03:40a high valuation now and they want to get things done quickly just in case they have a low valuation

03:45later. Do you see that anywhere else? We don't see that a lot. I mean, I think occasionally if a

03:53business gets approached and there's a bilateral negotiation, people may work without a banker

03:58if they're saying, hey, I forgot one buyer. It's the best buyer. Let's get this done quickly. But I think

04:03if you want that competitive tension in your process, and ultimately that's the difference between a good

04:08outcome and a great outcome, I think you want to work with advisors that are going to keep that

04:12competitive tension all the way through to the end.

04:15Rob, I would love to get your take. We were just speaking with Cliff Asnes of AQR about some of his

04:19peers, decidedly not AQR, but some of his peers in the hedge fund world. Millennium 0.72 starting to

04:26offer and fundraise for private capital, be it credit or equity. It gives echoes of years past when the

04:32Tiger Cubs, for example, started to get into private equity. And a lot of them struggled on the other side

04:38to offload assets that they had bought at expensive valuations. What does it say to you about the

04:42overall environment when you have, I don't want to call them tourists, but it's kind of the only

04:46word I have at the moment, when you have people who are traditionally not doing private capital

04:50trying to get into it?

04:52I think it's a trend that's here to stay. I mean, I think if you just step back for a minute,

04:57the number of public companies has decreased over the last 10 years. The number of private companies,

05:02the number of companies held by private equity or other investment vehicles, that's grown.

05:07And so, you know, and it's shown to be, and I listen to Cliff, and I think Cliff has some great

05:12insights. I do think that there's a little bit of hidden volatility. I do think that the private

05:17markets are more opaque. But I think the main street investor or the retail investors, you know,

05:23being able to participate in private equity, I think that's here to stay, or private credit or private

05:28capital markets, however you want to define it. It's just too big of an asset class. And clearly right now,

05:33as some of the institutional investors are tapped out because they haven't gotten the returns of

05:37capital they needed, you know, people that are looking to raise money are looking for where is

05:41the money? Well, the money's in the retail area. But I do think, you know, there has been a trend

05:46over years of retail investors finding a way to get into private equity. It may have been through a

05:50holding fund. I think the current tide is making it a lot easier. But I don't think that's a tide

05:56that's going to turn back. I think like anything else, you want a balanced portfolio. You don't

05:59want to go too heavy into any one asset class. But I don't think this is a fad or a temporary thing.

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