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