Speaker 1: Paul Talman, the chairman and CEO of PGAT Partners, joining
Speaker 1: us around the table and amh thirteen million is the number.
Speaker 1: We're going to mention a few times with that man
Speaker 1: right there.
Speaker 2: It's a record on any country ever what the US
Speaker 2: is producing. Yet the Biden administration does not like to
Speaker 2: talk about it. It's like a secret that no one
Speaker 2: wants to talk about in Washington. But it's also part
Speaker 2: of the reason why going into an election year, you
Speaker 2: have gasoline under three dollars again.
Speaker 1: Yeah, he's going to be talking about it later on,
Speaker 1: that's for sure.
Speaker 2: We're going to force him.
Speaker 1: Let's begin with our top story this morning, counting down
Speaker 1: to US economic data, GDP, Core, PCEE and jobless claims.
Speaker 1: Ninety minutes away, Investors hoping for more clues on the
Speaker 1: Fed's rate cut Timeline, Bank America and Goldman expecting the
Speaker 1: first move to come in March City Morgan Stanley have
Speaker 1: the Fed waiting until June to talk about the outlook
Speaker 1: for investment banking, and a whole lot more. Paul Talman,
Speaker 1: the CEO of PJAT Partners Joints, as around a table,
Speaker 1: Morning Pool, Good morning, the investment banking recession, sir, is
Speaker 1: it closing, is it ending.
Speaker 3: It's beginning to warm. It's going to take a long time.
Speaker 3: It's going to take a long time. We've had the
Speaker 3: punch bowl, We've had incredibly easy money conditions, zero interest rates.
Speaker 3: We've taken the punch bowl away, and markets haven't fully adjusted.
Speaker 1: Do you think a couple of right cuts make a
Speaker 1: difference to you? Well, this conversation that we have every
Speaker 1: single day.
Speaker 3: They do, they do. The reality is that rates right
Speaker 3: now are coming down. The only question is when. And
Speaker 3: I do believe that it's going to be pushed out
Speaker 3: further and until we start to see actual rate cuts,
Speaker 3: I think it's going to be difficult to really get
Speaker 3: the financial markets, the M and A marketplace moving.
Speaker 4: You said something there that I think is really telling.
Speaker 4: You said, the punch bowl has been taken away, but
Speaker 4: it takes time to adjust. Sort of the long and
Speaker 4: variable lags. We've debated for about the better part about
Speaker 4: three years. Do you think that there is amountain of
Speaker 4: reckoning and valuations that has yet taken place in your space,
Speaker 4: in private equity, in sort of some of the deal space.
Speaker 3: Well, let's look at it. So if you go back
Speaker 3: You've had a global m and a market that's four
Speaker 3: to four and a half trillion year in, year out,
Speaker 3: plus or minus four and a half trillion. All of
Speaker 3: a sudden, COVID market triveles up three trillion, fed comes
Speaker 3: in rates go to zero six trillion. Now the punch
Speaker 3: bowl is taken away eleven rate hikes three trillion. So
Speaker 3: we've gone from four and a half to six to three.
Speaker 3: And now the question is how do we get this
Speaker 3: marketplace started again? And when you think about it, a
Speaker 3: lot of that is private equity involvement has dried up.
Speaker 3: And when you look at how active private equity has
Speaker 3: been and how much they've hit the sidelines, that I
Speaker 3: think is what people don't fully appreciate. And until private
Speaker 3: equity gets more forward leaning, until they're prepared to sell
Speaker 3: a lot of the assets that they have bill they're
Speaker 3: prepared to recycle that capital and make new investments, I
Speaker 3: think you're going to have this this stuck environment.
Speaker 4: So what kind of haircut are we talking about? Because
Speaker 4: essentially it's a price issue. They don't want to take
Speaker 4: a twenty percent haircut of thirty percent haircut. They don't
Speaker 4: want to lose money. How much are they going to
Speaker 4: have to in order to get this market moving.
Speaker 3: Look, one thing about private equity is they are exquisite
Speaker 3: at controlling exit timings and they have long runways. And
Speaker 3: that's why I think this is going to be a
Speaker 3: very very slow build backup. And when you think about
Speaker 3: that larger constituency being that active in the M and
Speaker 3: A marketplace, and now all of a sudden, they're controlling
Speaker 3: their exits and they're pushing them out, and they're not
Speaker 3: returning capital to investors, and all of a sudden, the
Speaker 3: capital that's being called is greater than the capital that's
Speaker 3: being distributed. The IPO markets have been tight, so there's
Speaker 3: very little in terms of monetizations in the IPO marketplace.
Speaker 3: The credit markets have constrained dividend recapitalizations. There's a bit
Speaker 3: at gone private equity assets as far as monetizing. So
Speaker 3: we're going to work our way out of this. So
Speaker 3: when you ask me about the recession, it's been an
Speaker 3: M and A recession, it's been an investment banking recession. YEP.
Speaker 3: I think many of the conditions are in place to
Speaker 3: start that recovery, but it's not going to pop back up.
Speaker 3: It's not going to do so immediately, but I think
Speaker 3: we're starting to get there.
Speaker 1: This is your world, help me understand it a little
Speaker 1: bit more. You mentioned m Anda, so let's talk about that.
Speaker 1: If I'm a company right now, am I waiting to
Speaker 1: see what happens with the politics before I go out
Speaker 1: and do a big deal, a big acquisition.
Speaker 3: The political environment that we're in, we're now in an
Speaker 3: election year that's going to dramatically increase the volatility in
Speaker 3: the marketplace. I don't think that's appreciated to the full
Speaker 3: extent today. As we get further into the year and
Speaker 3: closer to the election, my sense is you're going to
Speaker 3: see the pause button hit on a lot of transactions.
Speaker 3: So in a way, we may see a catalyst in
Speaker 3: the IPO market where companies want to come to market
Speaker 3: early in the year and not wait. I think you're
Speaker 3: likely to see more M and A activity in the
Speaker 3: first half of the year. People are likely to hit
Speaker 3: the sidelines later, and then once the election is over
Speaker 3: and we understand the direction going forward, I think you're
Speaker 3: going to have a pretty robust snapback.
Speaker 2: Hasn't Jet Blue and Spirit the potential merger that's blocked,
Speaker 2: and we see the way the Biden administration thinks of
Speaker 2: antitrust laws. Hasn't that just said to the M and
Speaker 2: A market potentially maybe wait till twenty twenty five and
Speaker 2: see if the political environment changes.
Speaker 3: The reality is that relatively few transactions get caught up
Speaker 3: in the regulatory review, but it has a chilling effect
Speaker 3: on those and we tend to focus too often on
Speaker 3: the deals that get reviewed, the deals that get blocked,
Speaker 3: and we don't focus on all the deals we never
Speaker 3: saw that never got brought to market because of a
Speaker 3: fear of an elongated review process. Interesting, and in a
Speaker 3: world where it's incredibly complicated, where valuations are moving, to
Speaker 3: be on the sidelines for twelve, fifteen, eighteen months, that's
Speaker 3: an opportunity cost that's really sort of caused a lot
Speaker 3: of companies to say, you know what, I'm just gonna
Speaker 3: wait for another day.
Speaker 4: So how many rate cuts are necessary before it gets
Speaker 4: things moving? So basically walk back half of them. Five
Speaker 4: rate cuts and then things, you know, really go crazy
Speaker 4: or is it two?
Speaker 3: I think the first critical inflection point was when we
Speaker 3: stopped the hikes, and it's not a coincidence that the
Speaker 3: depth of the market was when we were still hiking
Speaker 3: and you started to see a small rebound, some green
Speaker 3: shoots when it was clear that we had hit stasis.
Speaker 3: I think the next leg in the recovery is when
Speaker 3: you actually start to see cuts and I don't know
Speaker 3: if it's one or two, but you just need to
Speaker 3: see some conviction that we've crested and we're on the
Speaker 3: way down. And I think at that point in time,
Speaker 3: things open up significantly. It's easier to get the bid
Speaker 3: ask spreads narrowed. I think people have more conviction that
Speaker 3: if they're leaning into assets, they're going to end up
Speaker 3: with good deals. I think people are more comfortable starting
Speaker 3: processes because they know that there's some momentum, some tailwind
Speaker 3: behind and right now it's like two boxers sort of
Speaker 3: circling one another.
Speaker 1: How important were the energy deals of the last few
Speaker 1: months just to get that process started to get things
Speaker 1: moving well?
Speaker 3: That was a very large, large component of this rebound
Speaker 3: in M and A has been these large energy deals
Speaker 3: and you've got all these shale producers, there's excess capacity.
Speaker 3: There needs to be consolidation and rationalization. You've seen some
Speaker 3: of it. I think you've seen the biggest of it,
Speaker 3: but you'll continue to see consolidation in the space. But
Speaker 3: there's no doubt that those were two of the very
Speaker 3: few mega deals that we've seen in recent times.
Speaker 1: Number One industry for you right now where you expect
Speaker 1: to see a lot more.
Speaker 3: Look, I start with places where it's cash buyers, strong
Speaker 3: balance sheets, So that leads you to healthcare, That leads
Speaker 3: you to energy, that leads you to consumer, that leads
Speaker 3: you to tech. But what's happened also is with these
Speaker 3: seized up credit markets, there are a lot of companies
Speaker 3: where in order to take them over you have change
Speaker 3: of control, You've got to refinance the entire debt stack.
Speaker 3: When you've got a debt stack that you're not sure
Speaker 3: you can refinance, and if you refinance it, this are
Speaker 3: meanfully higher cost all of a sudden, it's more and
Speaker 3: more difficult. So cash buyers, strong balance sheets, those are
Speaker 3: going to be the industries they are going to lead
Speaker 3: us out of this.
Speaker 1: I know what Bramo's thinking of right now, We're going
Speaker 1: to talk about it in the next segment. You think
Speaker 1: in big egos and media, Oh yeah, big time.
Speaker 4: I want to see you know who's going to buy Disney,
Speaker 4: Is you're going to buy Netflix?
Speaker 1: But he's not going to talk about I cool, I'm
Speaker 1: going to have you with us. You're going to stick
Speaker 1: with this poll Talb and that