The math may not work in the very near term, to sell those assets in order for them, to get maximum value. And one of the things about, the alts world and private equity sponsors is they are incredibly adroit, at timing exits and without an incredible impetus. I think you’re seeing more restrained exits, which is dampening M&A. And because you are having more restrained exits and because there is less DPI for investors. And because this flywheel is slightly out of balance, I think at the margin, their willingness to commit capital has also been subdued. And I have said that when rates actually start to be cut, as opposed to when they have crested, is when you’re likely to see that market heat up in a meaningful way. And that most likely will be sometime in the middle of 2024.
And on the strategic side, what I’ve always pointed to is, even with these very challenging conditions, company’s desires to pursue M&A, to use M&A as a tool has never wavered. And that’s not something you typically see in a bear market. In many bear markets for M&A, oftentimes executives have no interest in seriously considering M&A. And what we have here is – two going on three years of subdued activity. Lots of companies have strategic plans and initiatives that, they need to execute. And at the first sign that, they can finance a transaction that, they can agree on value that, they’re going to be in the game. And that’s why we’ve seen the leader, if you will, in resuming and reopening the market has been more corporate-driven, and less sponsor driven.
But that too takes a little bit of time, because there are still impediments to this. And some of the targets in order to take over a company, the entire cap stack has to be refinanced, and that may be difficult in the current environment. There may be concerns about, and I trust risk not so much about whether the deal will ultimately be bounced, but more about how long it will take, how long the review process, and what could happen to the underlying business, between signing and closing in an extended regulatory review. So, you’ve got lots of different elements, but I think what’s clear to say is the direction of travel is positive. But these markets tend to take a little bit of time to reopen and to pick up steam. And then the last point I would make, is that a lot of M&A is pro-cyclical, which I equally refer to as FOMO that transactions beget transactions and transactions beget competitive responses.
And if your competitors are taking advantage in using M&A as a tool that’s probably going to accelerate your time line. If your competitor isn’t doing anything, it probably gives you a sense of security that you can buy your time. So, we’ve clearly touched bottom. We’re clearly building a base back up. But just exactly what that recovery curve looks like, it’s hard to tell, although if history is a guide, the first year tends to be subdued, and then it picks up steam and returns.
James Yaro: That’s very clear. As my follow-up, somewhat related question, to what you just spoke to on the sponsor side. Fundraising remains muted, and I do appreciate your constructive commentary on Park Hill improving. But maybe you could just update us on what you’re hearing from sponsors on their ability, to accelerate fundraising at this point relative to 2023, and over the course of 2024. And then what this means for the time line for Park Hill revenue to fully normalize. Is that a 2024 event or something that’s more of a medium-term expectation?
Paul Taubman: I think the direction of travel begins in a positive direction in ’24. But I don’t think it gets fully back to normal levels in ’24. I would defer that for the moment to say ’25, we’ll revisit that. But I think it’s probably a two-year process to get to where we got to. We saw some weakening in the marketplace in the latter half of ’22. It carried over to ’23. I think in a similar vein to the M&A commentary. I think we’ve touched bottom and it’s now more constructive, but that will take some time. And one of the challenges is, a little bit of an affordability issue, which is you’re pulling all this capital and you’re not returning a lot of capital. And with the IPO market still not really fully open and vibrant as a monetization tool.
And with subdued M&A that has put a damper on it But the lack of capital that’s been called, is one of the ways in, which the system gets back into equilibrium. Also, the credit markets, they’re ripping tighter. You’re starting to see the early signs of some dividend recap deals and the like. So, I think liquidity, is beginning to flow back in the marketplace. And I think that’s all very positive for the Park Hill business in the intermediate term. But clearly, ’24 will be an up year.
James Yaro: Okay. Thank you so much.
Operator: Thank you. Our next question will come from Steven Chubak with Wolfe Research. Please go ahead.
Steven Chubak: Hi, good morning, Paul. Good morning, Helen.
Paul Taubman: Good morning. Hello.
Helen Meates: Good morning.
Steven Chubak: Hello, Paul, you flagged election risk in a recent interview as a potential overhang on deal activity. Admittedly, I’ve asked that of other management and they’ve been fairly dismissive of the impact. And so, I was hoping you could maybe walk through some of the election game theory, how this overhang, is going to impact deal activity across different sectors. And just what you’re hearing from corporates generally, ahead of the upcoming election?
Paul Taubman: Yes. I think just – let me be really clear. What I said was that, no one was focusing on the election right now. But that come summer, that’s all people are going to be talking about. And therefore, what is not a risk today, they will be a risk tomorrow. And therefore, I’m not at all surprised, to hear you say that in some of your conversations, people are not assigning that, as a principal risk today, because it’s not. But I do believe that as we get into the election and as the rhetoric heats up, and as we have competing policy initiatives. And as we – I expect to have a very close election, where it is unclear where we’re going to be in terms of policies, tax immigration, China relations, and the like that, that may have a freezing effect.
I’ve also said, I think there is some possibility for some foreign intervention, to create mischief near the election. So when people talk about geopolitical risk, that’s geopolitical risk, but it comes in the form of an election. And then I’ve made the point that, since we’ve had two razor thin elections that, have been decided by literally tens of thousands of votes that goes down to a county or two or three, I don’t expect this third time around to be any different. And therefore, the possibility of a disputed election and what that brings, which is another form of geopolitical risk. So, I don’t want to be a naysayer. I’m just simply pointing out that, I think something that is not on people’s radar screens today will get on people’s radar screens at some point.
And we’ve seen that with things like the debt ceiling, where no one talks about it and then all of a sudden, they can’t stop talking about it. So that would be my perspective.
Steven Chubak: Very helpful color, Paul. And just for my follow-up on capital management. Certainly a meaningful uptick in the repurchase authorization. Certainly nice to see that. Just want to better understand how we should think about the cadence of buyback, and the share count trajectory in the year ahead, given some of the impact of prior year awards, which Helen had alluded to in her prepared remarks?
Paul Taubman: Look, we are a big believers in our company and in our prospects. And we also feel an obligation to our shareholders to be good stewards of capital, and those two things go hand-in-hand. So you should expect us to continue, certainly relative to others, to be very aggressive in using our capital to buyback our stock, because we can capture value and we can avoid dilution for our shareholders. And if you look back over the last eight years, how well we’ve accomplished that goal, that’s the playbook we intend to use for the next eight years, and eight years after that and beyond. What we’ve also said, is we happen to come into this year with our best balance sheet in the firm’s history and you measure it on any basis, whether it’s cash, cash less comp payable net working capital, any dimension.
