Becker Private Equity & Business Podcast
Tariffs, Private Equity, and Market Uncertainty with Rick Kes of RSM 2-3-25
Mon, 03 Feb 2025
In this episode, Scott Becker speaks with Richard Kes, Partner at RSM, about the impact of tariffs, inflation concerns, and federal spending cuts on private equity and deal-making.
Chapter 1: What is the focus of the podcast episode?
This is Scott Becker with the Becker Private Equity in Business podcast. We are thrilled today to be joined by Rick Kess. Rick is a partner at RSM. RSM's the leader in sort of private equity consulting in the mid-market. Just a fantastic firm. A lot of Q of E work and readiness for deal work. We're going to talk to Rick today about what is going on in the private equity environment.
Chapter 2: What recent events are affecting market uncertainty?
What should we expect this year? What is he seeing? And a lot more. We're talking today in a strange day in the markets where President Trump imposed tariffs yesterday in Canada, Mexico, and China. That's causing some gyration in the markets. But looking beyond that, or maybe you can't, Rick, can you tell us what we could expect in the P.E. deal world currently?
Yeah, you know, this week has been kind of another crazy week, I'd say, you know, in terms of just things that we have our eye on, you know, and, you know, kind of jokingly, you know, the most exciting part to me was the Luka Doncic trade last Saturday. That kind of shocked me for sure. But, you know, the terrorists obviously receiving a ton of headlines and
Chapter 3: How are tariffs impacting different industries?
I'd say our economists that work within RSM are a little industry agnostic and things of that nature. They're very in-depth in their research and analysis on the impact of tariffs. When I think of it from an industry perspective, it definitely is going to have different impacts to different industries, as one would expect. obviously my industry of choice tends to be healthcare.
And I think about healthcare, obviously a lot of supplies and goods are bought from companies that may have acquired those goods from China or Mexico or Canada. So we are talking to our clients a little bit about tariffs. I mean, it's not like the number one issue on many of our clients' minds. But I do think
Chapter 4: What role does healthcare play in the private equity market?
just like anything, more uncertainty in the market is probably not good for deal-making activity, except for if you can you know, perhaps take the uncertainty and kind of say, well, maybe in the private market, maybe in more domestic-focused services, you know, the tariff exposure isn't as strong, so maybe it isn't as, you know, pervasive to the overall deal market thesis kind of consideration.
Chapter 5: How does uncertainty affect deal-making in private equity?
So, you know, it's hard to know for sure, but in my mind, you know, healthcare is somewhat insulated from some of that tariff issues, although, you know, obviously,
There are plenty of things that they're buying that are ultimately going to be potentially subject to a tariff, but it isn't like 90% of their supply chain is coming from China or something like that, that they're going to have this outsized impact. But again, uncertainty is typically not... all that well received by investors kind of in any sector.
So I would think it will at least put a pause in some people's mind, whether it keeps them from doing a deal or not as yet to be seen, but certainly not exactly accretive to the overall process, I wouldn't think.
Chapter 6: What are the concerns surrounding federal spending cuts?
A hundred percent. And I guess I'll mention two things just quickly. One is Chairman Powell has some concern with them just in terms of inflation. So it's going to cause him to go a little bit slow in reducing rates, it seems like. So that's one thing that can impact the deal market.
The second thing, as long as we're talking health care a little bit, I guess one of the big concerns in the health care world is the potential efforts by the Trump administration, President Trump's administration, to cut some of the spending federally and some big parts of that are towards Medicaid, Affordable Care Act subsidies and some other places.
And that could have a negative impact on the health care deal world, I take it.
Oh, certainly. You know, kind of going back to the week being exciting. You know, I woke up to, you know, an email from our firm related to the potential pause, well, the announced pause, and then later the rescinding of that pause of federal funding. And
Immediately, our clients started calling related to Medicaid, in particular, other government-funded things like subsidies and other things like that. So, yes, I do think this past week, whether it's the tariffs or the federal funding pause or some of the other things that have continued to be somewhat newsworthy have continued to, I'd say, shake the overall healthcare ecosystem a bit.
Now, some of those things have quickly changed or quickly subsided, but some of them still exist. And I think then now, even with the rescinding of that federal funds announcement, Even with that, I think there is now this heightened level of uncertainty of, well, could that happen again? Or could the overall tension there cause issues in the future?
And obviously, it's just probably not all that great news for many of those in the healthcare industry to cause more uncertainty than less. And I do think you're right on the inflationary perspective. Our economists put out a video yesterday about the price of guacamole. You know, avocados are getting kind of a lot of news related to the increase with the tariffs.
You kind of extrapolate that to other goods and services purchased from Mexico, Canada, China. Obviously, that's just going to cause inflation potentially. And if that inflation comes through, you know, the interest rate environment obviously is going to have kind of an impact as well.
No, 100%. And avocados may not be the biggest thing, but they're directional in terms of issues versus specifically about avocados and guacamole. Even though, you know, you're in Minnesota, I'm in Chicago. We love our guacamole. We probably love it every place in the country, but we'll see how this goes. Let me ask you another question. We were talking pre-Super Bowl, Eagles versus Chiefs.
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