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00:00An already volatile market feels even more so now, entering now a wartime environment.
00:05Our next guest has first-hand knowledge of global M&A volumes and deals in the pipeline.
00:10He spent nearly 30 years at Morgan Stanley before founding his own firm,
00:14which quickly grew into an industry power player.
00:16It is Paul Taubman, the founder, chairman, and CEO of PJT Partners.
00:21He joins me now exclusively to take a look at the big picture.
00:24Paul, thank you so much for joining today.
00:25Great to be here, Danny. Thank you.
00:26I have to say, your crystal ball has an excellent track record.
00:30Back in October, you were talking about maybe put the pom-poms away for the 2026 deals environment,
00:35your most latest earnings.
00:37You said that, yes, there are overly optimistic bankers, but you have a more sober view of the world.
00:42Now we add in another geopolitical risk of war.
00:45What does your current sober view of the world look like?
00:48I don't think it's a sober view so much as it's a realistic view.
00:51You have to start with, what's the baseline?
00:53The baseline is we came through 2025, record levels or near record levels of M&A activity, large deals, return
01:01of private equity.
01:02But the reality is we're dealing in a world of uncertainty, a lot of volatility, and we flagged two risks.
01:08One was geopolitical risk, and the other was AI disruption risk.
01:12And in our view of the world, those risks haven't been ignored, but they've been mispriced.
01:20And it was not that long ago that we were looking at a market meltdown approximately a year ago with
01:26the whole tariff issues and the uncertainties and the like.
01:30At the beginning of this year, Greenland surfaced as an issue.
01:33So when we think about all of the geopolitical hotspots, the idea that we're going to go through an entire
01:39year unscathed, I just don't think is realistic.
01:42And then there's a longer-term trend.
01:44And most industry observers have been focusing on all of the stimulative effects of AI, all of the capital investment,
01:54the jobs, the demands for power, data centers and the like.
01:57But the reality is where there's creation over here, there's disruption, near, I say, destruction over here.
02:04And I don't think the market has fully appreciated that it's not necessarily a soft landing to get from all
02:10the growth and investment and world-changing capabilities of AI.
02:14But there's going to be a lot of roadkill left behind.
02:18And we're just seeing both of those in terms of the uncertainty about software, how to value it, terminal value.
02:25And we're dealing with a war where energy prices have spiked.
02:28All of a sudden, commodity costs are through the roof.
02:31And it's not exactly clear what the endgame is.
02:33It'll clarify.
02:34But until it does, there's volatility.
02:37And as we all know, the biggest killer of M&A is volatility.
02:40So maybe it's a market that's slowly coming around to where you were in, which was once a lonely view,
02:45but increasingly becoming more popular in terms of just this idea that dealmaking might slow down.
02:51Once the market does fully realize what you're talking about, what does that look like?
02:55What do M&A volumes end up looking like for 2026?
02:58Well, it's hard.
02:59It's hard to know exactly what they look like in 2026.
03:02But if you step back and take a long-term secular view, M&A activity should increase.
03:08It should increase because the world is speeding up.
03:12As the world speeds up, CEOs, boards of directors need to adapt.
03:16They need to respond.
03:18They need to respond more aggressively.
03:20They need to pair their portfolio, focus on core competencies.
03:24Scale matters increasingly.
03:26You need to onshore increasingly.
03:28You need to control your supply chains so you'll see more vertical integration.
03:32You'll also see more horizontal consolidation in an effort to get to scale and have the financial wherewithal to make
03:39the AI investments.
03:40So if you take a long-term perspective, it should be up and to the right.
03:45And we are long-term bulls on M&A and M&A activity levels.
03:50Having said that, when you come off a year that is the second best in history and you're facing these
03:56big unknowns, it's hard to think that you immediately increase by 20%, 30%, 50%.
04:03And that was really the only sober caution that we have.
04:06When you get to a more stable environment and there is less volatility, there's more price discovery, there's more appreciation
04:14and meeting of the minds between buyers and sellers, you'll see a meaningful return to M&A.
04:21But if we get to the $5 trillion mark, we're really in rarefied air.
04:27And I think there's a path for that to increase over time.
04:31But it's rarely in a straight line and it's rarely just easily up and to the right.
04:36That's all we're flagging.
04:37But considering that these are really big existential risks, AI and war itself, too, are you concerned that that period,
04:43that window opening, that it gets further delayed or that it looks increasingly short?
04:47Well, there's what we don't know are the tail risks.
04:51And what we don't know is there are all these unintended consequences.
04:55Once you engage in significant hostilities and you're seeing choke points in the supply and transport of energy and all
05:06of the ripple effects that that have on the consumer, on the broader ecosystem, it's hard to know where things
05:14settle out.
05:15But ultimately, things do settle at a new equilibrium and the underlying need to transact is stronger than ever.
05:24So it's just a matter of time getting there.
05:26And I think what you're seeing in credit, what you're seeing with software valuations, is there was a base case.
05:33There were tail risks.
05:35And the tail risks weren't properly priced in.
05:38And every now and then, some of those tail risks look a little bit more like the base case or
05:43a somewhat likely case.
05:44And inevitably, all of that is going to work its way through the system.
05:48But right now, just to take software, when there is a world where no one really knows the long-term
05:55terminal value of many of these companies and they haven't yet been able to figure out winners and those who
06:02are vulnerable, the price discovery process is very difficult.
06:05And you see that in credit and you see it in equity valuations and you see it in a lack
06:10of deals.
06:11But ultimately, the market returns to a new view, you get to a new equilibrium, and then we're back to
06:17the races.
06:18And to be fair, corporate America has been incredibly resilient over the past few years, just on the point of
06:23AI.
06:23Because it's not even just dealmaking, it's financial institutions themselves grappling with this technology.
06:30How are you thinking about use of AI at PJT?
06:33How is it being implemented?
06:34Well, the first thing is we're not looking to shrink our workforce.
06:41What we want to do is we want to make our best bankers more productive, better bankers, give better advice.
06:47So we start first and foremost with how can we use this as a tool to do more with what
06:53we have, not to do the same with less.
06:57We're still a growth firm.
06:59We're looking to continue to grow.
07:01We want to expand our geographic footprint, our product capabilities.
07:05So it's giving us deep insights into how to better advise clients.
07:10We've permissioned these tools for many of our senior bankers.
07:14And we're starting with our most senior bankers because that's where we believe you can get the greatest uplift in
07:22productivity and insights is by giving that to the most senior people.
07:26But you have to be very careful about how the information is accessed, how it's permissioned.
07:32Do you have the right backbone, the right capabilities?
07:35So we've been surveying, we've been innovating, but we've been cautious about exactly how best to implement all of this.
07:43But we have the luxury of being a smaller, more nimble firm where it's more of a game of offense
07:48for us than defense.
07:50It's such a good point.
07:51So how does that change how you think of what LLM do you partner with?
07:54Are you partnering with an LLM?
07:55Do you try to bring it more in-house?
07:57How do those concerns about privacy data, those things factor in?
08:00Well, that has been the debate.
08:02And that's why we've moved slowly but methodically here.
08:05And if I look at all the decisions we would have made had we been forced to pick a path
08:10six or nine months ago, they would have been the wrong path, the wrong direction.
08:14So what puts everyone ill at ease is you need to move quickly enough to be able to be on
08:24your front foot.
08:25But if you move too quickly in a world that's changing at such sonic speeds, you run the risk of
08:32headed down the wrong path.
08:34So it's how do you remain nimble?
08:36How do you constantly test every decision that you've made?
08:39And I think that's good for the organization to be on edge a little bit, but to see it as
08:44an opportunity to better serve clients and to not just be accepting that there's one panacea.
08:50There's going to be an evolution and a discovery process here.
08:53And that's why you need to put it in the hands of leaders first and followers second.
08:57Well, one of the things that this market was also very excited about dealmaking is this environment of regulators of
09:04a Trump administration coming in that's more business friendly.
09:07The administration has a lot on their hands.
09:08And one of the big things that they've been concerned about is affordability.
09:12I wonder how that impacts the regulatory environment, especially for consumer companies.
09:17Is this an administration that will be the M&A world is open, even if it is consumer facing companies?
09:24I think it's open for many.
09:25It's not open for all.
09:26So if you just step back and look at this administration, they have been incredibly pro-growth, pro-investment, pro
09:36-strengthening the economy and corporations.
09:39And you see that across the board in terms of cutting regulation, cutting red tape.
09:44That's all good.
09:45If you look at early terminations, HSR filings, there were six, seven of these back in 2024.
09:54It's like 400 early terminations in the first year of the Trump administration.
10:00So that direction of travel, incredibly positive.
10:03However, in a world where affordability is a cornerstone of this administration's economic policies,
10:11you have to believe that horizontal consolidation that creates the risk of price increases on consumer goods may be a
10:20no-fly zone.
10:21So I think it's productive for deals that should be done.
10:25They're not trying to frustrate deals across the board by just elongating every deal and just raising barriers.
10:32They're raising barriers where it makes sense to raise barriers.
10:35And hopefully they'll maintain those barriers on deals that shouldn't get done.
10:40So it's a much more constructive environment, but it's not an anything-goes environment.
10:44I just got 30 seconds here, but are you seeing that in the market, that some of those companies that
10:48might have issues of affordability haven't gone fully forward with their deals?
10:52It's certainly a consideration.
10:54I mean, every deal has to be looked at, you know, sort of from the ground up.
10:59And instead of it being an automatic no, it's a possible yes.
11:03And then you have to ask yourself, what are you doing as far as bringing jobs back to this country,
11:07investment?
11:08What are you doing to keep consumer prices down?
11:10And if you have a holistic package that's pro-growth and makes sense, you at least have an audience that
11:17may not have been the case before.
11:18All this has been so brilliant.
11:19Thank you so much for joining.
11:20We really appreciate your time today.
11:22That is Paul Taubman, founder, chairman, and CEO of PJT Partners.
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