00:00I'm really interested in this because this had been a part of this market that was really gummed up,
00:04middle market and especially sponsor-backed P&E.
00:08You call this an ice dam melting.
00:11Where specifically are you starting to see some of the deals break free?
00:17I'm broad-based, Danny.
00:18I think if I had to call out one industry sector, I would say industrials.
00:23The ice dam's probably melting faster there, and really for two reasons.
00:26One, as investors are looking for where are safe places to park money that might have less AI disruption,
00:34industrials and manufactured products are one of those.
00:36You have strategic acquirers that are trading at really high values, in some cases all-time high values.
00:41Secondly, the build-out of the data center infrastructure supporting AI has created tremendous demand for certain sectors of industrial
00:49products.
00:50We're definitely seeing industrials, but it has been broad-based, and it is an ice dam.
00:54It is a gradual improvement that we think has legs.
01:00Is this a situation where you've sort of got a liquidity wall here, and there's just lots of money out
01:06there,
01:06and you're able to raise money very easily, and that's also incenting people to try to sell their companies?
01:13You know, it's interesting.
01:14Fundraising for, to date, has not been great, but there's so much liquidity left over from fundraising done over the
01:21last several years,
01:22both in the private equity and the private debt market.
01:25So, you know, Michael, I think to your point, there's more capital that wants to be put to work right
01:29now than there are opportunities to invest.
01:32And so I think that's creating a view of let's bring more companies to market.
01:36I also just think there is a, as time has gone on, I think investors are thinking about their businesses
01:43and saying,
01:44listen, I've got money to deploy.
01:45I want to focus on the future.
01:48It's just time to sell some of these businesses that maybe haven't hit their investment thesis.
01:52So the A businesses, the high-quality, high-performing businesses, those have been selling fine.
01:56What really hasn't come out are the businesses maybe that haven't met their investment theses.
02:01I think we're seeing more of those come out.
02:03And I think we're also seeing investors deal with some of their problem children and put businesses through restructuring.
02:09See, Rob, that's what I wanted to ask is what we're seeing, just all the high-quality stuff that can
02:13be sold at the moment.
02:15For the things that were bought in 21 and 22, how still challenged is it to get actual meaningful deals
02:23and exchanges of hands of these companies,
02:25considering that many of them were just bought at lofty valuations?
02:28And a lot of them are, again, to use your term, problem children, like software companies.
02:34Well, I think one of the things that has happened, I think, particularly in the private equity world,
02:38as they've sold off some of their stars and they're locking in good returns or they're locking in returns on
02:44some of these funds,
02:45they now feel that, okay, I can sell these next level of businesses.
02:49And by the way, those aren't bad businesses.
02:51Those are good businesses that maybe just were bought at the wrong value or need a little more time to
02:55execute on their investment strategy.
02:57And they're doing several things.
02:58They're putting some of those in continuation vehicles.
03:00But some of them now, they're coming to market with the conviction of, okay, the market's going to speak,
03:05and when the market speaks, I'm going to transact.
03:07I think the problem children are the ones where they're either turning the keys over to the lenders.
03:11We have seen foreclosures increase in the last quarter.
03:17Investors, their most valuable asset is time.
03:20And if you put yourself in investors' shoes, where do they want to spend their time?
03:23Yes, they want to generate returns, but they want to spend their time on their strategies and their futures.
03:27And to the extent some of these legacy portfolio companies that are not going to have the returns that they
03:32wanted are taking up their time,
03:33they're of a mindset to start moving on from those.
03:36You do private credit advisory work, and I'm wondering what your view is of that whole segment sector right now,
03:44given all the talk of people being overleveraged and watching some funds blow up.
03:50Well, I think we have a very good finger on the pulse of the private credit markets, really, from two
03:56vantage points.
03:57One, we have a capital advisory business that helps raise private capital for our clients.
04:01But I think, as importantly, our valuations business, we're the leading provider of portfolio valuations to private credit.
04:07So we get to see the underlying health of the portfolios.
04:10The underlying health of those portfolios overall is good.
04:13Are foreclosures up?
04:15Yes.
04:16Are they up beyond what people were modeling?
04:18Likely not.
04:20Institutional investors continue to come into that asset class.
04:23The headlines have been a lot about retail investors wanting to get out and maybe not being able to with
04:30redemption gates.
04:31But I think that's a growing pain of retail investors coming into the private capital markets.
04:37These are long-term assets, and the horizons have to be long-term, and there's going to be some learning
04:43curve there.
04:43But where we sit today, there is lots of capital available, debt capital available, and we actually see a lot
04:50of institutional investors coming into that asset class.
04:52There has, though, at least in public markets, Rob, been some pushback on the massive amounts of spending that's occurring,
04:58especially within the tech players.
05:00I wonder if you're seeing any of that pushback also take place in private capital markets, considering that these giants,
05:06just given their capital needs, aren't just going to the broadly syndicate bond market, for example.
05:10They're also looking to the giants of Apollo's and the others of the world to get some of these debt
05:15offerings done.
05:18I think that the tech giants, and as I mentioned, the build-out of this infrastructure is real, and it's
05:24going to require financing from almost every pocket that's willing to do it.
05:29And I think also part of it, as we think about technology, there were some real headwinds in Q1 with
05:35what people were calling kind of the SaaS-pocalypse.
05:37We are seeing the market sort that out. The market is now starting to say in some of these software
05:41businesses, hey, this is a business that can benefit from AI.
05:44This is a vertical business that has data assets or other services. This is a good company.
05:49And the market is starting to really sort what are the ones that are subject to more AI disruption, and
05:54what are the ones that are actually going to benefit from it.
05:56So I do think we're going to see improvement and investment in the software market.
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