Becker Private Equity & Business Podcast
Navigating the Changing Exit Market: Insights from Rick Kes of RSM 2-26-25
Wed, 26 Feb 2025
In this episode, Richard Kes, Partner at RSM, discusses the evolving exit market, the end of multiple arbitrage, and what it takes to create real value in today’s investment landscape.
Chapter 1: What is the current state of the exit market?
Rick, we're in a world where we're still seeing sort of delayed exits or exits that are prices that don't lead to big gains for the private equity funds. what is your sense of what's going on in the exit market? And is this going to, uh, you know, move in the right direction, so to speak, what's your sense of what's happening and, and, and what, what's your perspective?
Yeah. I mean, you know, I think, um, What we see with our clients is a lot of just, you know, every story is different. Every client, every situation is different. You know, some of our clients that, you know, have, you know, businesses that are really well ran, have a good track record, executive talent on their team.
Chapter 2: How do different businesses perform in today's exit environment?
you know, have a really strong business model, maybe have some ability to show how they differentiate using technology or, you know, something else in that respect. You know, those businesses seem to, you know, move along and exit just fine.
I think the organizations that we see that have a higher level of struggle or maybe those that, you know, are maybe a little laggard in their technology advancements, you know, somewhat, you know, kind of, more traditional in their business models and not maybe advancing things and pushing the needle, so to speak, and kind of being a leader in the industry.
And then I think those are the organizations that perhaps four or five years ago when there was a pretty big boom in the economy for deal exits or deal transaction activity, those businesses were trading at multiples that I think are going to be hard to achieve in the current environment. So, you know, maybe their expectations are a little higher than they could or should be otherwise. So I think
Chapter 3: What challenges do traditional businesses face in exits?
you know it's a it's again you know i think it really comes down to each individual business and transaction kind of stands on its own in some respects and and if you kind of boil them all together you know the ones that are really well ran and have you know really you know easy to sell ideas and concepts and technology i think those are the businesses that seem to move along
I think the ones that are maybe a little less sophisticated, I think those tend to have a little bit harder time to move unless the seller is willing to concede on some pricing and sell at multiples that maybe, you know, they wouldn't have expected, you know, three, four or five years ago.
Chapter 4: Is multiple arbitrage still a viable strategy for exits?
Chapter 5: What factors influence the value of a business in the exit market?
And then I think those are the organizations that perhaps four or five years ago when there was a pretty big boom in the economy for deal exits or deal transaction activity, those businesses were trading at multiples that I think are going to be hard to achieve in the current environment. So, you know, maybe their expectations are a little higher than they could or should be otherwise. So I think
you know it's a it's again you know i think it really comes down to each individual business and transaction kind of stands on its own in some respects and and if you kind of boil them all together you know the ones that are really well ran and have you know really you know easy to sell ideas and concepts and technology i think those are the businesses that seem to move along
I think the ones that are maybe a little less sophisticated, I think those tend to have a little bit harder time to move unless the seller is willing to concede on some pricing and sell at multiples that maybe, you know, they wouldn't have expected, you know, three, four or five years ago.
thank you very very much and and what do you see i mean the days of multiple arbitrage where people just sort of sold into a rising multiple market seemed at least for the time being to be over although at some point when we get interest rate cuts that money came back so that makes doing deals and exiting at the right price that much harder is that a fair statement just because there's not this multiple arbitrage that people used to have that was part of just rolling up companies putting them together and selling at a higher multiple
That seems to be, at least for the time being, largely gone. Any sense of that or what you're seeing out there?
Yeah, I completely agree with that sentiment. I think, you know, the days of just buying and building and not really doing anything new to the business and then creating value that those days seem to be gone. I think you need to buy, build and become more efficient or do something different with that business.
Like, you know, obviously, Scott, you know me well enough to know that I'm very keen into health care and, you know, if you just said, oh, we're going to take a bunch of physician practices and roll them up and sell them, that model isn't exactly the model that is being bought and sold today. But if you buy a bunch of physician practices,
build a value-based care model, do something different, use technology to advance and become more efficient or to reach patients in places that you wouldn't have been able to reach patients before. If you're changing the business and becoming more, advanced and pushing the needle in the industry, then you're creating value.
So I think just buying and building and creating scale that may make some minor arbitrage ability, but I think buying, building and changing the business to become more attractive to the next buyer. I think that's really where you'll find, you know, that arbitrage that you're talking about.
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