Time now for our Wall Street Week daily segment.
David Westin, the host of Wall Street Week, joining us today just a little bit
about an hour away from your normal show here.
And you had a chance to sit down with Blair Ephron a lot.
Oh, of course, everyone in our world knows who he is.
And you had the chance to talk to him about the imminent pipeline.
Yeah, he's at the center of so many deals, including the Emerson deal that
he just did a really big one. And the question is, how come it's
slowed down so much and when is it likely to come back?
And we start out actually asking you about credit because we always talk
Romaine Bostick tightening credit. Is that part of the reason?
So this is what Blair had to say about why we're seeing a slowdown in a.
It's getting better. Still constrained.
Fourth quarter of twenty two, you had nothing today you actually have the
markets loosening up for the right deals.
Missing data point, for example, largest LBO in the past six, seven, eight months
was a deal of Blackstone and Emerson for the climate business 14 billion dollar
deal. No bank debt was available.
The private direct lending market stepped in.
Firms like Apollo, Blackstone, KKR Areas did five and half billion of financing
to see it through. Half of that has been replaced in the
past week by the banks. So it really depends on the credit and
it depends on what the deal is. But there is absolutely credit
available. Obviously, the key is it's much more
expensive. You should assume for
a private equity transaction, it's 500 basis points or so higher than it would
have been a year and a half ago. And for a corporate deal, 200, 250 basis
points. And that leads to the next issue, which
is how you price an asset for sale. And obviously with multiple staying high
and elevated and 18 times PE, it's the same as it was last year, same as it
wasn't 21. But yet your returns in any transaction
are more difficult. So you have to think about
how to get the buyer and the seller to come to agreement.
Not not easy. As I recall, some of you might have had
something to do with the Everson deal. We did.
You could give us a plug, I. Okay, let's do that.
So let's go to that question of buyers and sellers and where they think the
price is, because some of those prices are coming down, valuations are affected
by interest rates and also some slowing of the economy in some places.
Had the sellers gotten their heads around the fact that their price may be
lower, they finally started to do that, which is actually why I think there is
more discussion. You don't see it yet in terms of
announcements, but you see companies thinking more about MDA as part of
their thinking in twenty three. And I would venture to say that as we
exit the year twenty three and get in 24, you'll see activity actually start
to pick up quite a bit. So you think it will come back.
Do you think we'll reach the levels we had before because we have some record
levels. Oh boy, that was high.
You think about a 5 trillion dollar peak market
that probably unlikely. But the idea that you'll have a stable
global equity market of 4 trillion dollars or so per year, I think
absolutely. And what you find out generally about
emanate, David, now is it's less prone to cyclicality.
It's part of a company's core strategy. Most companies are actually very good at
it. And when you're thinking about new
average, new growth, new areas for your business, you're thinking about the pace
of disruption and how you combat that.
It becomes important for most companies to want to want to consider when you've
been on with us before. You've emphasized, Blair, that
uncertainty is one of the biggest factors in determining whether companies
want to do deals or not. Where are we?
Uncertain, because there seems to be a lot of uncertainty around right now.
We are in uncharted, complicated waters, starting with the debt ceiling, which
were to come back to the banking environment more generally and whether
you think we're in a slowdown or something more severe in the coming
months. I happen to be in a slowdown camp.
I think there's a lot of resiliency that we don't account for a lot tailwind that
will beat stability. But that uncertainty clearly is an issue
when you think about doing a transaction.
Remember, you want to be able to think of a debt transaction when there's a
macro tailwind because it covers up some of your assumptions that may not
pan out. It's just people do better in a growth
environment. Any company does so clearly an issue.
And I think until the debt ceiling situation resolves
and that's a question mark, I hope it'll be weighing pretty heavily.
We heard from Jamie Dimon of JP Morgan again this week and he reiterated
something he had said before, which is we can talk about the 10 year yield.
We can talk about regional banks. We can talk even about the debt ceiling
thing worries him is geopolitics. It's actually Russia, Ukraine.
It is China, U.S. relations.
It's Iran. Does that affect your business?
Of course it does. Now, I would tell you that I don't know
CEO who is not an exquisitely attuned to the geopolitical environment everywhere.
They are experienced in operating globally in all kinds of areas.
And it absolutely goes into what kind of advice and what kind of discussion you
could have with the CEO, what kind of discussion you're having the board,
where should you put capital where five and 10 year period, not just over the
next year. What are the black swan risk or frankly,
what I call a great rhino, something that's staring you in the face, but you
just don't pay attention to it. And then it actually hits you.
All this makes being a senior leader in a company more difficult, more uncertain
than ever. And I applaud a lot of them for actually
steering the ship through this kind of complication.
But I also tell you that the companies are better than ever managing through
uncertainty. We've had a decade, a decade and a half.
Of uncertainty, yet companies across the country, big and small, performing
better than ever. Just last quarter, 80 percent of our
companies surpassed estimates. Granted, the estimates were revised but
surpassed estimates. And
companies are more nimble in how they make decisions were nimble in terms of
how they take that information and figure out what the outcome potential
outcomes could be. And factoring that in so more difficult
is a macro. But we have an industry and a private
sector that's up to the challenge.