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00:00Dave, good to see you. Bailey, I feel like we...
00:03Usual, yeah. It's like I badge in, I badge out.
00:05We are always seeing you and we're lucky.
00:08SpaceX, of course, the largest IPO ever.
00:11I'm just curious from your view how you think market participants right now, Dave,
00:15should be looking at this in the context not just of other potential IPOs in the future,
00:20but really in the context of everything we're seeing out there right now.
00:25The talk of people taking money from other assets, selling that, getting into SpaceX,
00:29just your view.
00:30Yeah, I think, I mean, first of all, for somebody in the ECM world, what a time to be alive.
00:35These are great times for the markets.
00:38And I think unlike other cycles we've seen where IPO issuance has been extremely active,
00:42you have a real catalyst forming the investment thesis behind this.
00:46This is the re-industrialization of America.
00:48We're creating new ecosystems, new economies.
00:51I mean, you think about what space could become, what AI could become.
00:55These are investment theses that many people haven't been able to invest behind before.
01:00And so I think seeing this euphoria in the IPO market is warranted and appropriate.
01:05What's the signal to the market and market participants specifically?
01:08I think right now you're seeing that the IPO worked.
01:11And you saw Friday a very strong trading with the stock finishing up 19% from the IPO price.
01:16And I think today you see broader markets rallying on the news with Iran peace treaty.
01:23And you're seeing just more enthusiasm coming in.
01:25SpaceX up another 15% today.
01:27Exactly.
01:27And so I think it's all systems go to make a pun intended for SpaceX.
01:31But I think if there was any hesitancy of should I continue to buy up 20%, I think the answer
01:36is yes.
01:37And if you look long enough, this is a business that could be generationally transformational.
01:42But thinking about the generational transformation, Dave, when I look at the pipeline or the kind of group of companies
01:47that could be coming public, they don't look like SpaceX.
01:51When you're meeting with people, maybe your former employer, KKR, talking about something in their portfolio, a number of other
01:57private equity firms, what are they looking at?
01:59Obviously, this is a big win for IPO buyers.
02:02But does that translate to someone who owns, say, software companies or other companies in other industries?
02:07Look, the mega IPOs are getting the headlines right now, but there's been a very active and very accommodative equity
02:16market in general throughout this year.
02:18And putting SpaceX aside, new issuance volumes are up almost 2x this time from last year.
02:25And the vast preponderance of that has been other sectors.
02:27And we've seen health care coming back.
02:30We've seen biotech issuance coming.
02:31We're seeing industrial energy.
02:34So the markets are working at large.
02:36Are all those themes still off of AI in some capacity?
02:40If the bottleneck is power and I'm a power company, then I at least have an AI pitch.
02:43Because when I look at AirTalk to folks, it's kind of like your TAM is either infinite because you have
02:48AI behind it or it's zero because your software and the worry is that your kind of total market could
02:54be at risk.
02:55How do you think about kind of other industries and how that fits into that?
02:58Yeah, look, I don't think the market is shut out for certain issuers.
03:01I think it does come down to price and having the right starting point in the public markets.
03:07And I think there is a bid for those other businesses.
03:10You know, you mentioned sponsor-backed businesses.
03:13It's a good time to, you know, what I would say, get the puck on the ice, start it.
03:17And, you know, we always say when we're advising our clients and our issuers, proof points in the public market
03:22are worth even more than in the private market.
03:24And so getting out there, starting it, and you can see how, you know, your valuation can expand as you
03:30perform.
03:31You can get your share price to a level that you might be more interested in selling at.
03:35But getting, you know, getting started can be helpful.
03:37What is it about this moment right now, Dave, that is compelling so many of these companies, not just to
03:41go public, but also to look into going public?
03:43And I am going back to sort of the companies that, when they do go public, will become mega cap
03:48companies.
03:49And just to tag on to what Tim's saying, opportunistic or fundamentally based?
03:53I think this is a more fundamental-based market.
03:57And, you know, you look back to 2021, which felt a little bit more technical.
04:01It was like rates were zero, and so therefore equities were attractive.
04:04And you had a very different dynamic that drove that.
04:06I think this is much more of a fundamental.
04:08I think the market is looking at what the next three to five years could be and, you know, potentially
04:14looking past some of the near-term volatility.
04:15And it's not saying they're ignoring downside risk.
04:18But I think saying there are certain businesses right now that are very much worth investing in.
04:23There's a whole slate of new issuance that is different than the portfolio I've had in the past, and I'm
04:27going to take that opportunity to invest in it.
04:29I am thinking, though, about those mega IPOs, be it Anthropik or OpenAI.
04:32Should we make any assumptions about their market reception just because of what happened with SpaceX?
04:39I think, I mean, SpaceX is an end of one of itself from the fact that no one else is
04:45doing space at this scale, at this velocity.
04:48But it's an AI play.
04:49But it is an AI play.
04:51But where I was going with that is I do think, I mean, this bodes, if you're Anthropik and OpenAI,
04:55you're applauding that this type of market reception happened.
04:58And, you know, the size of the deal getting done, having a trade as well as it did, to me,
05:02that gives you more confidence that the next wave could get done in a very positive way.
05:07Well, when we look at what the next few months can look like, back to the broadening out, is AI
05:12still the flavor of the day?
05:14If we look at some of the reports that are out there in SK Hynix or other large companies in
05:18the AI space looking to tap the market, like Carol was mentioning, because of these tailwinds?
05:24And kind of what does that mean for this July, this August class?
05:27Yeah, look, I think we're going to have a very active summer, even the SpaceX period of time.
05:32You know, a lot of people thought coming in, we'd have a dearth of issuance and you'd have a real
05:35quiet period.
05:37We did $10 billion of equity capital outside of SpaceX last week.
05:41And so, you know, the market was still working.
05:42There were still a ton of deals getting done.
05:44I think this CapEx cycle, to your point of AI, people still want to invest on it.
05:49And that's across equity debt, you know, all the facets of capital here.
05:54And so the public markets are helping that, but it's also the private capital markets as well.
05:58We're seeing capital formation in almost every corner of the capital markets.
06:01You oversee ECM.
06:02I come back to the point that Google, Alphabet, however you want to call them, raised close to $90 billion
06:07across a suite of products.
06:08Is that something we should expect from all these hyperscalers who need capital to attack the equity market?
06:15And is there any risk that that gets oversaturated?
06:18I think the speed at which Google is able to raise in the public markets shows the depth and the
06:25capacity for the capital markets.
06:27And I think as long as companies are showing an ROI and a good use of proceeds to raise that
06:31equity capital, the markets will be there for them.
06:34How do we know when it becomes uncomfortable, crazy, exuberant?
06:41Frothy?
06:41Frothy.
06:42Well, think back to 2021.
06:43It's easy now to say that these were companies that were advantageous, but in the moment, did it feel that
06:48way?
06:49I go back to when you look at fundamentals and you look at valuations, we're not terribly stretched and we're
06:56not at a new point in time.
06:58And you go back and you look at, for example, software valuations in 2021, those were hitting new highs and
07:04they were hitting kind of new records of where the market was trading that we're not seeing that writ large
07:08in the public markets.
07:09But SpaceX isn't profitable.
07:10No, it's not.
07:11And it's being valued on a sales multiple for 2025 sales.
07:14And I think that some people have come and sat here and said, you know, it's starting to feel like
07:18when we're valuing IPOs on sales multiples, it started to feel a little bit like the dot-com boom.
07:24Why is this time different?
07:27Well, one, I think that's unique.
07:29One, SpaceX, I think, is its own animal.
07:31And I think when you're thinking about the space economy, you have to look at that in a very different
07:34way.
07:35I don't think you're seeing the rest of the market being valued aggressively on a sales multiple or other metrics
07:40where people are trying to extend and get comfortable with it.
07:43I think these are based more on fundamentals.
07:45It's based on growth right now.
07:46And people are seeing where the capital being laid today has a return in the future.
07:51And I think you can pull that forward.
07:52And that's what's going on.
07:53But the circular financing doesn't worry you guys?
07:57We have this conversation a lot.
07:58Are we stupid to have that conversation about a company that seems to buy from another part of its properties
08:04or invests in a chip maker because they need to?
08:07You know what I'm saying?
08:09What's the conversation you guys have about that circular financing?
08:14What keeps me sleeping well at night about this is the fact that we're having the conversation.
08:18And I think if people are acknowledging it, we're talking about it, you're dissecting it, you're diligencing it, I think
08:23this cycle has room to continue and to grow.
08:25I think it's the unknown risks, not less the known risks that I think could derail the cycle.
08:33And when we look at this market, is there a risk in kind of just thinking about the difference between
08:38a hyperscaler who has historically been the best cash flow cows in the history of mankind?
08:44They can at least turn off spending.
08:45How do you think about companies that are spending and need to spend but don't have hundreds of billions of
08:52dollars annually or biannually in terms of free cash flow?
08:55Yeah. Look, I think you have to look at the fundamentals of the contracts.
09:01What is contracted from the demand bill that they have today and get comfortable that what they're investing in right
09:08now has the right economics to yield a return in three or five years?
09:12And I think you're right.
09:13They might not have the free cash flow spigot today, but you look at what is contracted and what could
09:19come to fruition in a high-quality way in the next two to three years,
09:24you can bridge to that free cash flow.
09:26We've got 30 seconds left here.
09:27You've been covering this market.
09:29What do you want to ask Dave?
09:30Do we see more private equity IPOs in the second half, or is that still an area, broadly speaking, that's
09:35touch and go?
09:36I think definitively, yes.
09:39I think the market would be accommodative for that, and our backlog suggests that we will have a number of
09:45those in the second half.
09:46In about 10 seconds, how much does leverage ratios matter for those companies?
09:51It matters, I think.
09:53I think you want to get it to a comfortable starting point, but I think for good free cash flow
09:57stories with solid, predictable revenue and growth, the market can get comfortable.
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