WEBVTT - Bloomberg Surveillance: Paul Taubman on M&A and Elections

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<v Speaker 1>Paul Talman, the chairman and CEO of PGAT Partners, joining

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<v Speaker 1>us around the table and amh thirteen million is the number.

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<v Speaker 1>We're going to mention a few times with that man

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<v Speaker 1>right there.

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<v Speaker 2>It's a record on any country ever what the US

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<v Speaker 2>is producing. Yet the Biden administration does not like to

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<v Speaker 2>talk about it. It's like a secret that no one

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<v Speaker 2>wants to talk about in Washington. But it's also part

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<v Speaker 2>of the reason why going into an election year, you

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<v Speaker 2>have gasoline under three dollars again.

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<v Speaker 1>Yeah, he's going to be talking about it later on,

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<v Speaker 1>that's for sure.

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<v Speaker 2>We're going to force him.

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<v Speaker 1>Let's begin with our top story this morning, counting down

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<v Speaker 1>to US economic data, GDP, Core, PCEE and jobless claims.

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<v Speaker 1>Ninety minutes away, Investors hoping for more clues on the

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<v Speaker 1>Fed's rate cut Timeline, Bank America and Goldman expecting the

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<v Speaker 1>first move to come in March City Morgan Stanley have

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<v Speaker 1>the Fed waiting until June to talk about the outlook

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<v Speaker 1>for investment banking, and a whole lot more. Paul Talman,

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<v Speaker 1>the CEO of PJAT Partners Joints, as around a table,

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<v Speaker 1>Morning Pool, Good morning, the investment banking recession, sir, is

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<v Speaker 1>it closing, is it ending.

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<v Speaker 3>It's beginning to warm. It's going to take a long time.

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<v Speaker 3>It's going to take a long time. We've had the

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<v Speaker 3>punch bowl, We've had incredibly easy money conditions, zero interest rates.

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<v Speaker 3>We've taken the punch bowl away, and markets haven't fully adjusted.

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<v Speaker 1>Do you think a couple of right cuts make a

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<v Speaker 1>difference to you? Well, this conversation that we have every

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<v Speaker 1>single day.

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<v Speaker 3>They do, they do. The reality is that rates right

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<v Speaker 3>now are coming down. The only question is when. And

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<v Speaker 3>I do believe that it's going to be pushed out

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<v Speaker 3>further and until we start to see actual rate cuts,

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<v Speaker 3>I think it's going to be difficult to really get

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<v Speaker 3>the financial markets, the M and A marketplace moving.

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<v Speaker 4>You said something there that I think is really telling.

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<v Speaker 4>You said, the punch bowl has been taken away, but

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<v Speaker 4>it takes time to adjust. Sort of the long and

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<v Speaker 4>variable lags. We've debated for about the better part about

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<v Speaker 4>three years. Do you think that there is amountain of

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<v Speaker 4>reckoning and valuations that has yet taken place in your space,

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<v Speaker 4>in private equity, in sort of some of the deal space.

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<v Speaker 3>Well, let's look at it. So if you go back

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<v Speaker 3>You've had a global m and a market that's four

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<v Speaker 3>to four and a half trillion year in, year out,

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<v Speaker 3>plus or minus four and a half trillion. All of

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<v Speaker 3>a sudden, COVID market triveles up three trillion, fed comes

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<v Speaker 3>in rates go to zero six trillion. Now the punch

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<v Speaker 3>bowl is taken away eleven rate hikes three trillion. So

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<v Speaker 3>we've gone from four and a half to six to three.

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<v Speaker 3>And now the question is how do we get this

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<v Speaker 3>marketplace started again? And when you think about it, a

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<v Speaker 3>lot of that is private equity involvement has dried up.

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<v Speaker 3>And when you look at how active private equity has

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<v Speaker 3>been and how much they've hit the sidelines, that I

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<v Speaker 3>think is what people don't fully appreciate. And until private

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<v Speaker 3>equity gets more forward leaning, until they're prepared to sell

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<v Speaker 3>a lot of the assets that they have bill they're

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<v Speaker 3>prepared to recycle that capital and make new investments, I

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<v Speaker 3>think you're going to have this this stuck environment.

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<v Speaker 4>So what kind of haircut are we talking about? Because

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<v Speaker 4>essentially it's a price issue. They don't want to take

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<v Speaker 4>a twenty percent haircut of thirty percent haircut. They don't

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<v Speaker 4>want to lose money. How much are they going to

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<v Speaker 4>have to in order to get this market moving.

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<v Speaker 3>Look, one thing about private equity is they are exquisite

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<v Speaker 3>at controlling exit timings and they have long runways. And

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<v Speaker 3>that's why I think this is going to be a

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<v Speaker 3>very very slow build backup. And when you think about

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<v Speaker 3>that larger constituency being that active in the M and

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<v Speaker 3>A marketplace, and now all of a sudden, they're controlling

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<v Speaker 3>their exits and they're pushing them out, and they're not

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<v Speaker 3>returning capital to investors, and all of a sudden, the

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<v Speaker 3>capital that's being called is greater than the capital that's

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<v Speaker 3>being distributed. The IPO markets have been tight, so there's

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<v Speaker 3>very little in terms of monetizations in the IPO marketplace.

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<v Speaker 3>The credit markets have constrained dividend recapitalizations. There's a bit

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<v Speaker 3>at gone private equity assets as far as monetizing. So

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<v Speaker 3>we're going to work our way out of this. So

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<v Speaker 3>when you ask me about the recession, it's been an

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<v Speaker 3>M and A recession, it's been an investment banking recession. YEP.

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<v Speaker 3>I think many of the conditions are in place to

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<v Speaker 3>start that recovery, but it's not going to pop back up.

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<v Speaker 3>It's not going to do so immediately, but I think

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<v Speaker 3>we're starting to get there.

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<v Speaker 1>This is your world, help me understand it a little

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<v Speaker 1>bit more. You mentioned m Anda, so let's talk about that.

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<v Speaker 1>If I'm a company right now, am I waiting to

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<v Speaker 1>see what happens with the politics before I go out

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<v Speaker 1>and do a big deal, a big acquisition.

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<v Speaker 3>The political environment that we're in, we're now in an

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<v Speaker 3>election year that's going to dramatically increase the volatility in

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<v Speaker 3>the marketplace. I don't think that's appreciated to the full

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<v Speaker 3>extent today. As we get further into the year and

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<v Speaker 3>closer to the election, my sense is you're going to

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<v Speaker 3>see the pause button hit on a lot of transactions.

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<v Speaker 3>So in a way, we may see a catalyst in

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<v Speaker 3>the IPO market where companies want to come to market

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<v Speaker 3>early in the year and not wait. I think you're

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<v Speaker 3>likely to see more M and A activity in the

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<v Speaker 3>first half of the year. People are likely to hit

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<v Speaker 3>the sidelines later, and then once the election is over

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<v Speaker 3>and we understand the direction going forward, I think you're

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<v Speaker 3>going to have a pretty robust snapback.

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<v Speaker 2>Hasn't Jet Blue and Spirit the potential merger that's blocked,

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<v Speaker 2>and we see the way the Biden administration thinks of

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<v Speaker 2>antitrust laws. Hasn't that just said to the M and

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<v Speaker 2>A market potentially maybe wait till twenty twenty five and

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<v Speaker 2>see if the political environment changes.

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<v Speaker 3>The reality is that relatively few transactions get caught up

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<v Speaker 3>in the regulatory review, but it has a chilling effect

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<v Speaker 3>on those and we tend to focus too often on

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<v Speaker 3>the deals that get reviewed, the deals that get blocked,

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<v Speaker 3>and we don't focus on all the deals we never

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<v Speaker 3>saw that never got brought to market because of a

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<v Speaker 3>fear of an elongated review process. Interesting, and in a

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<v Speaker 3>world where it's incredibly complicated, where valuations are moving, to

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<v Speaker 3>be on the sidelines for twelve, fifteen, eighteen months, that's

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<v Speaker 3>an opportunity cost that's really sort of caused a lot

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<v Speaker 3>of companies to say, you know what, I'm just gonna

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<v Speaker 3>wait for another day.

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<v Speaker 4>So how many rate cuts are necessary before it gets

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<v Speaker 4>things moving? So basically walk back half of them. Five

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<v Speaker 4>rate cuts and then things, you know, really go crazy

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<v Speaker 4>or is it two?

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<v Speaker 3>I think the first critical inflection point was when we

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<v Speaker 3>stopped the hikes, and it's not a coincidence that the

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<v Speaker 3>depth of the market was when we were still hiking

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<v Speaker 3>and you started to see a small rebound, some green

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<v Speaker 3>shoots when it was clear that we had hit stasis.

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<v Speaker 3>I think the next leg in the recovery is when

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<v Speaker 3>you actually start to see cuts and I don't know

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<v Speaker 3>if it's one or two, but you just need to

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<v Speaker 3>see some conviction that we've crested and we're on the

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<v Speaker 3>way down. And I think at that point in time,

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<v Speaker 3>things open up significantly. It's easier to get the bid

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<v Speaker 3>ask spreads narrowed. I think people have more conviction that

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<v Speaker 3>if they're leaning into assets, they're going to end up

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<v Speaker 3>with good deals. I think people are more comfortable starting

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<v Speaker 3>processes because they know that there's some momentum, some tailwind

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<v Speaker 3>behind and right now it's like two boxers sort of

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<v Speaker 3>circling one another.

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<v Speaker 1>How important were the energy deals of the last few

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<v Speaker 1>months just to get that process started to get things

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<v Speaker 1>moving well?

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<v Speaker 3>That was a very large, large component of this rebound

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<v Speaker 3>in M and A has been these large energy deals

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<v Speaker 3>and you've got all these shale producers, there's excess capacity.

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<v Speaker 3>There needs to be consolidation and rationalization. You've seen some

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<v Speaker 3>of it. I think you've seen the biggest of it,

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<v Speaker 3>but you'll continue to see consolidation in the space. But

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<v Speaker 3>there's no doubt that those were two of the very

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<v Speaker 3>few mega deals that we've seen in recent times.

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<v Speaker 1>Number One industry for you right now where you expect

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<v Speaker 1>to see a lot more.

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<v Speaker 3>Look, I start with places where it's cash buyers, strong

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<v Speaker 3>balance sheets, So that leads you to healthcare, That leads

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<v Speaker 3>you to energy, that leads you to consumer, that leads

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<v Speaker 3>you to tech. But what's happened also is with these

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<v Speaker 3>seized up credit markets, there are a lot of companies

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<v Speaker 3>where in order to take them over you have change

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<v Speaker 3>of control, You've got to refinance the entire debt stack.

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<v Speaker 3>When you've got a debt stack that you're not sure

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<v Speaker 3>you can refinance, and if you refinance it, this are

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<v Speaker 3>meanfully higher cost all of a sudden, it's more and

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<v Speaker 3>more difficult. So cash buyers, strong balance sheets, those are

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<v Speaker 3>going to be the industries they are going to lead

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<v Speaker 3>us out of this.

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<v Speaker 1>I know what Bramo's thinking of right now, We're going

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<v Speaker 1>to talk about it in the next segment. You think

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<v Speaker 1>in big egos and media, Oh yeah, big time.

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<v Speaker 4>I want to see you know who's going to buy Disney,

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<v Speaker 4>Is you're going to buy Netflix?

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<v Speaker 1>But he's not going to talk about I cool, I'm

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<v Speaker 1>going to have you with us. You're going to stick

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<v Speaker 1>with this poll Talb and that