Dealmaking for the Next Decade: Going Public, Taking Private, and Everything In Between with moderator: Steven Bertoni, Assistant Managing Editor, Founders, Forbes and panelists: Nelson Griggs, President, Nasdaq, Michal Katz, Head of Investment & Corporate Banking, Mizuho Americas and Rohan Oza, Cofounder & Managing Partner, CAVU Consumer Partners.
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LifestyleTranscript
00:00For the next conversation, deal making for the next decade,
00:04going public, taking private, and everything in between,
00:07please welcome moderator Stephen Bertoni,
00:10assistant managing editor, Founders, Forbes,
00:13and panelist Nelson Griggs, President, NASDAQ,
00:17Mahal Katz, head of investment
00:20and corporate banking, Mizzou Americas,
00:23and Rowan Oza, co-founder and managing partner,
00:26Kavu Consumer Partners.
00:30Thank you.
00:31Thank you.
00:33Hello, everyone.
00:35I'm really excited for this panel.
00:36This group up here is kind of, if you're a company,
00:40it's the life cycle or the stages of a company.
00:43Rohan's the VC you have to win over.
00:45Mahal's the big iBanker that's gonna build you
00:49and take you public, and then Nelson,
00:50you're the final boss.
00:52If you make it to Nelson on NASDAQ,
00:53you're in good shape.
00:55It's good.
00:56Deal making in the next decade,
00:58This should be called deal-making in the next 10 weeks.
01:02I'll start with Rohan down at the end.
01:04Tell me, what is the climate right now?
01:06What is the deal-making situation?
01:09I think it's a tale of two cities.
01:11Rewind four years ago.
01:13I think, you know, deals are getting made plentiful.
01:15You had a great idea, you got funding.
01:17You had a half-basic idea, you still got funding.
01:20Because there was so much money out there
01:22that people felt they had to deploy it,
01:24and so everyone was just getting capital in.
01:26Entrepreneurs, I think, got a little complacent,
01:29and they would drive valuations up
01:31because you have 10 people bidding,
01:33so they're like, well, we'll pay 10 times revenue
01:35because the public markets,
01:37or even the private markets at exit,
01:39will pay 10 times revenue.
01:41The world has now changed,
01:43and I think that people are a lot more discerning.
01:46Great companies are still getting funded,
01:48but a lot are not.
01:49So valuation resets are now coming into play.
01:52Capital is a lot more cautious about where they go,
01:56and entrepreneurs have to have real ideas,
01:58and those that have real ideas will come through,
02:02but those that don't are gonna get washed out
02:04a lot quicker than they did in the past.
02:07From your view, Mahal, what do you see?
02:08Yeah, I actually, to amplify this,
02:11I actually think that deal activity is there,
02:13but it's highly concentrated.
02:15Whether you're talking about the IPO markets,
02:18the M&A markets, or financing across the board,
02:21when first that started, the performance of the markets,
02:24yes, the markets are at or record highs,
02:27but again, concentrated with the cohort
02:29of the magnificent seven or the magnificent one,
02:32whereas the Russell 2000 is way lagging the S&P 500.
02:36When you take a look at valuations,
02:39yes, the S&P is rating at 22 times,
02:41but that cohort I just talked about
02:44is at 30 times plus forward PE,
02:47and when you take a look at M&A activity that we have seen,
02:51it's the big deals that have been getting done.
02:52When I say big deal, Omega deals defined as 10 billion plus,
02:56they constitute 40% of the market today,
02:59and so we are seeing activity.
03:01It is a tale of two cities, but it is highly concentrated,
03:05so from my seat, I think there's enormous amount
03:07of pent-up demand as the market broadens out.
03:11Nelson, with NASDAQ, obviously you list public companies,
03:13but you also have a very robust secondary market.
03:17From your seat, what do you see?
03:18Yeah, I think we're continuing the trend here
03:21and it is definitely highly concentrated
03:22in the top companies.
03:23We haven't really seen that broadening out yet.
03:25You need to get to the broad-based companies
03:27doing the beat and raise
03:28to get more of a broadening of the market.
03:30We kinda need that for an IPO market to really take hold,
03:33so we've been very slow for the first half of the year.
03:35That's gonna probably be the same case
03:36for the second half of the year,
03:38but building to this idea that 25 can be a better year,
03:41and part of that is some of the valuation resets
03:43that did occur in 2023,
03:45and we're starting to see the secondary activity
03:47of some of the trading in the top companies
03:49trade above those valuations.
03:50So there's a little bit of that building back up,
03:52but we probably need more time
03:54to actually impact the public markets.
03:55And we talked about this pent-up demand.
03:56Obviously, last year, deals were down
03:59about 30% from the year before.
04:01This, the overall length of investments
04:04is at an all-time high,
04:05so you have all this demand.
04:06What is gonna make the dam burst
04:09and start the deal-making like it was back in 2021?
04:15To me, a flight to quality,
04:16it seems like a standard statement,
04:17but we're in the consumer space, right?
04:20Cavu, and we've probably got two brands
04:23that to me are illustrations,
04:24Farmer's Dog and Poppy.
04:25One's a soda, one's a fresh dog food company.
04:29Everyone spoils their dogs, no matter what.
04:31Everyone spoils their dogs, and everyone likes soda,
04:33just not so much sugar.
04:34Those are quality products,
04:35and they were built off margin,
04:37real consumer need, and a huge time.
04:40So those brands are achieving massive scale.
04:43They'll be billion-dollar brands.
04:45The potential is big,
04:48and they will get the right funding,
04:49they will get the right backing.
04:50So there's a flight to quality,
04:51and then you'll start to see those cracks in the dam.
04:54To use your dam analogy,
04:55when you have successes, there's a crack,
04:58then there's a crack.
04:58And then when you have multiple successes,
05:00either from IPO or strategics,
05:03or even large private equity,
05:04where there's a quality product involved,
05:06then the dam bursts.
05:08But you're gonna have to have many of those
05:10to basically make up for the sins of the past.
05:12Because in the past, a food delivery company
05:14was worth $60 billion.
05:16That probably doesn't make sense in this room,
05:18but we also have supported it.
05:19So I think that it's now, it's flight to quality,
05:22real time, real margins, actually making money,
05:25which is a new phenomenon.
05:27And that's, I think, where you see the cracks
05:29and the dam will burst.
05:30Mahalo.
05:31People are waiting for interest rates,
05:32they're waiting for this presidential election,
05:33something else.
05:34What do you think?
05:35Well, also, you have an audience here of investors.
05:37LPs want their money back.
05:39Also, mega funds have been raised,
05:41and investors are looking to deploy capital.
05:44So you have this dynamic
05:46where we need to start putting money to work.
05:47And there has to be this resetting.
05:50There was a Bain study that said
05:52that there are 28,000 portfolio companies
05:54sitting in PE funds that are worth $3 trillion in value.
05:59That value, if we attribute that to whatever statistic,
06:03those, think of 40% of those companies
06:07have been sitting in the funds for over four years.
06:10We've also created 1,400 unicorns over the last five years.
06:14Those unicorns need to go public.
06:16And so, unless Nelson's market opens up
06:19and allows those companies to debut into the public markets,
06:23we do need to find an alternative.
06:24And an alternative can really vary.
06:26It could be M&A, it could be a minority stake,
06:29it could be a rollover into a next fund.
06:31But something needs to happen
06:33in order to satisfy investor, I would say,
06:36demand for return on their investments.
06:39Yeah, I think it's just a good,
06:40we see everywhere we go in the private equity world,
06:42the VC world, everyone's looking for liquidity.
06:44So how do they get that liquidity?
06:45They're trying to get more creative.
06:46We're seeing more unique deals happen in the PE space
06:49where companies are getting traded
06:52between the different firms,
06:54or they're looking for different options
06:55to say, how do I get to put new money to work
06:58as opposed to, and recycle the old money?
07:00So we're seeing a lot of attempts at that,
07:03but we're not quite there yet.
07:04So when's it gonna happen?
07:04When's it gonna happen?
07:05What are we waiting for?
07:06When's it gonna happen?
07:08Well, before that, I was gonna say
07:09there was an interesting deal that got announced,
07:11I think it was last week,
07:12that in lieu of debuting into the public markets,
07:17a private equity-backed company called Blue Triton,
07:21which is in the healthy hydration space,
07:24merged with Prima Water for an all-stock transaction.
07:28So here is a way for a private equity firm
07:30to debut into the market via a stock-for-stock merger
07:34in the consumer space that, in some ways,
07:39tries to address some of those challenges
07:41of trying to go into the market.
07:43You asked, when will that happen?
07:47I think that you don't need perfection in the market
07:50for transactions to effectuate,
07:53but you do need some certainty,
07:55and you do need some stability.
07:57With the data that's out there,
07:59inflation is certainly cooling.
08:01I do think that there is an expectation
08:04that the Fed will start cutting rates,
08:06if not in the second half of this year,
08:08certainly into 2025.
08:10So there is an expectation that interest rates have peaked.
08:15Folks are settling into the higher for longer,
08:18so you're learning to live with a higher-rate environment.
08:22We've seen record issuance in Q1
08:25in the investment-grade market,
08:26the non-investment-grade market.
08:28Prior panelists talked about private credit.
08:30We have seen the broadly syndicated market opening up
08:34and doing so with very tight spreads.
08:37And so you're beginning to see that cycle of opening
08:40in the market already.
08:42Very cool.
08:43This time last year, I was on stage,
08:45and we were talking about the balance
08:47of the public market valuations versus the private.
08:50And a year ago, a lot of the private valuations
08:51were based on the old, the year ago, and hadn't caught up.
08:56Where are we sitting right now in terms of that balance
08:58between private and public valuations?
09:01I mean, I'll take the private side.
09:03I think the public valuations, they've taken their medicine.
09:07I think the quality companies continue to rise
09:09and their valuations grow,
09:11and those that had no business being there,
09:12let's call it imposter syndrome, have dropped down to earth.
09:15And that's the nature of the public markets, and it's great.
09:18I think in the private markets,
09:19people, a little bit of ostrich syndrome, heads in the sand,
09:22and unless you really have to raise money,
09:24you're not changing your last round of valuation.
09:27And I think that when you have to raise money,
09:30those valuations really be drastically different.
09:32One, they're gonna come down,
09:34or two, unless you've significantly grown
09:36and you're profitable, then you'll continue to rise.
09:38And Nelson and I spoke about that.
09:39There's some that will do that,
09:41and they're getting a great secondary action.
09:43He'll talk about that.
09:44But in the private side, I think that there's gonna be,
09:46the reset hasn't quite come yet,
09:48and I think the washout hasn't come yet either,
09:51because there's gonna be companies
09:52that at some point are gonna need money
09:54and will not get the funding
09:55because they don't have the level of quality they should,
09:57and they will disappear.
09:59Yeah, just like the public markets have a concentration
10:02of the higher-end companies,
10:04we're seeing the top 30 private companies,
10:06their valuations are trending up from their raises of 23,
10:09about 10% or so.
10:10We've done about, there's been about $8 billion
10:13of secondary transactions happen this year alone,
10:15which is up from almost nothing last year.
10:17So you are seeing a momentum build,
10:19but it's very concentrated, again,
10:20in the top 30 names or so.
10:22So it hasn't broadened out yet.
10:24Very cool.
10:25You mentioned the washout.
10:26What is gonna happen to all those companies,
10:28maybe some of those 1,400 unicorns you mentioned,
10:31that are gonna raise or run out of money?
10:33What happened?
10:34These are brands, these are products, they have customers.
10:37What is going, who's gonna benefit,
10:39and what's gonna happen to these companies?
10:41Well, I mean, from my perspective, I think three things.
10:43One, the environment is causing companies to get fitter.
10:47So we're in the consumer space, right?
10:48So in the end, people have to eat, drink, wear, live.
10:53That won't change.
10:54As long as humans are around, that will remain.
10:55People also wanna feel better about themselves,
10:57fundamentally, and especially Gen Z and millennials.
10:59So that's a factual statement.
11:02So from our perspective is like,
11:05if that's going to happen,
11:08then the quality of those companies
11:14in that environment you're in becomes a lot more critical.
11:17And before, the washout I talk about
11:20were brands that were nice to have, not need to have.
11:23And in that washout,
11:24I think it'll make everyone better for it going forward,
11:28because you will look back and say, right,
11:29that's not the way to do it.
11:31We know the way to do it going forward.
11:33And I think that's in the past, there was no benchmark.
11:36Everything got funded, everything was gonna have exits.
11:38And now that you see these things won't exit,
11:40these things won't happen,
11:41it's gonna be tough for those who invest in those companies
11:43because they will lose money,
11:44but it will make us a lot better on a go-forward basis
11:47of where money should go.
11:48I think it's a lot more acute for private companies,
11:51particularly in the venture growth stage,
11:53which by their nature require capital to continue growing.
11:57And this is not the first time
11:59that the venture community had to make tough decisions.
12:01Which ones are we gonna continue to invest in?
12:04Which ones are you basically sink or swim?
12:06And which ones are gonna be basically closed shop?
12:09And so it is an interesting time post-froth in the market
12:13to really think about which ones
12:15are serving a real market need,
12:16have a true competitive differentiation,
12:19have a right model,
12:20and are focused now on what I think
12:22is the hardest part of any investment
12:24is getting to achieve this operational excellence
12:28to drive value creation.
12:30So it's the haves and have nots, as you said.
12:32I would add to that, I said earlier,
12:34companies are getting fitter.
12:36You're saying operational excellence.
12:38Fitter means less fat, better margins.
12:40Profit is actually something that's a good thing,
12:42not growth at all costs.
12:44You can't just be DTC and have a CAC model
12:47that brings in people at some point,
12:49where's the money coming from?
12:50So all that is pivoted.
12:51You've gotta be an omni-channel brand.
12:53You can't just be DTC.
12:54People live their life IRL, as it were,
12:57so you've gotta be everywhere people live.
12:59So I think those are the big changes you've seen
13:01in how companies need to think.
13:02We saw the washout in the public markets a lot last year.
13:05There was 500 e-listings, which is double the average,
13:08so I think you saw that.
13:09And a lot were in the SPAC grouping,
13:11but you have seen a lot of the public company washout
13:13because it's a transparent marketplace
13:15and they aren't performing for investors.
13:17They're not gonna be an ongoing entity.
13:18So I think we've seen some of that,
13:19and usually the private markets are gonna be following that,
13:23and we're seeing some of that.
13:24And a lot of companies we talked about earlier
13:27that had no business going public.
13:29Public should be the most discerning company.
13:32You've got a real story to tell to go public.
13:35Rewind four years, people went public
13:37just because they couldn't go anywhere else.
13:38Like, oh, let's just go public.
13:39And then you've seen the washout from those companies.
13:42Mahal, you run an iBank.
13:44What are your teams telling these folks in private deals,
13:48folks that you're advising for IPOs,
13:50what are they seeing and what are you telling your clients?
13:53Look, at the end of the day,
13:55you really have to ask the client the question,
13:58is what are you solving for?
13:59And to Rohan's point is,
14:01which market best serves your interests?
14:04And so you start with that.
14:06If you are better served being in the private markets,
14:09then let's do that.
14:11That may mean that you may do a transaction
14:13at a different valuation with a higher cost of financing,
14:16with lower multiples.
14:18Private equity firms are looking
14:19for a different type of return.
14:21It's gonna be incredibly hard
14:23to maintain that return model.
14:25If you are better served being part of a broader platform,
14:28maybe merging with a strategic makes more sense.
14:31You talked about some companies
14:33having no business being public.
14:34Over the last three decades,
14:36we've seen the number of publicly traded companies have
14:39from what is it, 8,000 to 4,000.
14:41I do think the market is ripe
14:43for the next generation of companies to go out there.
14:46I think one of the challenges that I see in the markets,
14:48and I'd love Nelson's perspective on that,
14:50is that the average size of IPO
14:56has increased by 25% over the last 15 years.
15:00So you're talking about a issuance
15:02on average of 300 million.
15:04That actually goes to the disadvantage of smaller companies
15:09that could really benefit from being in the public markets,
15:12building institutional sponsorship,
15:15growing into their valuation or into their scale.
15:19So I think the first question you have to ask
15:21is what are you solving for?
15:22And are you well poised to go off
15:24to that market opportunity?
15:27Yeah, I think we could use a fourth panelist, the buy side,
15:29because we are seeing deals get,
15:31have to be bigger for them to,
15:33the buy side to want to go in them.
15:34So the average rate size is even taking up
15:36higher than the 300 million,
15:38and that's gonna continue.
15:39So the deals we have lined up for their pre-election,
15:42we'll see some definitely go out in July, August,
15:45a pretty active September,
15:47probably a pause then until December,
15:49but they're very, they're sizable deals.
15:51So I think that's gonna continue.
15:52And I don't know what the answer is to that,
15:55but it's, we're not,
15:55we're not seeing the a hundred million dollar raises
15:58much anymore.
15:59I mean, with some exception, right?
16:00With the buy attack and perhaps.
16:01There was a blanket, yeah, definitely something.
16:03But it does take kind of that,
16:04I don't know if you want to call it the trifecta
16:06of scale growth and profitability
16:08to debut into the markets today,
16:10which does limit options perhaps
16:13for that next cohort of companies looking to go public.
16:16So like fast forward to January, 2025,
16:20hopefully all the presidential uncertainty
16:23is out of the market and maybe you have falling rates.
16:26What does that, like, what does that scenario mean?
16:29What do you expect?
16:31What are you hopeful for?
16:32I'm just a beverage guy,
16:33so I would like to let the others opine.
16:36I mean, back to our thesis of cover,
16:40like we're in the sort of better view products
16:42that you live with.
16:43People are still gonna live,
16:44you're still gonna have to go through that.
16:46I cannot opine on the craziness
16:49of the geopolitical climate
16:50and whatever stellar candidates we have running,
16:54coming to market.
16:56I think that, at least for me,
17:01the underlying economy is still fairly robust,
17:04even though we have slowed down,
17:05even though there's some tension there.
17:08And I think as a country, we emerge stronger,
17:10but it's going to be a bumpy ride, I feel,
17:12before we get there.
17:13Because I think that the sins of the past
17:15have not been fully redeemed yet
17:17and they were in the process of doing that.
17:20And so, I can't comment on who comes in
17:23and what will do the market,
17:24but I feel that the market will, at some point,
17:27start to come back.
17:28You're cracks in the dam analogy,
17:29but it's gonna be a minute before that happens.
17:31It's not a election that happens January,
17:33we'll rock and roll come March.
17:35I also think that the rhetoric around the elections
17:38is a bit overstated.
17:40This is the first time in modern history
17:42where the two primary candidates are known.
17:46I do think that certain sectors
17:48may be better served by one versus the other.
17:51So, perhaps energy would do better under Trump
17:55and less well under the energy transition,
17:59I would say, agenda of the Biden administration.
18:02I think both candidates are very much committed
18:04to investing in infrastructure.
18:06That'll be an area that will continue
18:08to garner a lot of investment.
18:10But I think at the end of the day,
18:12there is, to quote Rowan,
18:13it is gonna be a bumpy ride.
18:15So maybe some transactions will be pulled up,
18:18like financings, which we're seeing,
18:20and others like M&A, which may be getting pushed out
18:24when both players have greater visibility
18:27as to what does the regulatory environment look like?
18:31Is it gonna be the restrictive Biden
18:32or less restrictive Trump administration?
18:35But all in all, I do agree that
18:37once we get some certainty in the market,
18:40you will see some of that unleashing
18:42of the dam and deal activity
18:44should re-accelerate.
18:45I was gonna comment on that.
18:46The regulatory aspect is pretty significant.
18:48So I think that could go one way or the other.
18:51We see that picking up a bit in the healthcare market,
18:53biotech markets, probably double what it was last year,
18:55off a really low base.
18:57So we're starting to see that sector pick up quite a bit.
18:59And certainly if there's an easier regulatory path
19:01in some areas of the FDA, et cetera,
19:03that could help a sector like that.
19:04But I think it's, the election historically
19:07has not had a massive impact on the IPO market.
19:10It's much more, the deals go out, they perform well,
19:14the next cohort do well, and then you kind of build on it.
19:15So we're still in that building phase
19:17that just needs to take hold.
19:19Well, we have about a minute left.
19:20I want to do a little lightning round.
19:22I want each of you to tell me
19:23something you're very excited about
19:25and give me a bold deal-making prediction.
19:29You can start, Ron, because you're the editor.
19:30I'm going first?
19:31You're going first.
19:32Is this a personal deal-making prediction?
19:34With those shoes, I have to hit you first.
19:36Those are amazing.
19:38Yes, personal, anything.
19:40Be bold.
19:42On what we do, okay.
19:44Fine, okay, well, in the lightning round,
19:48we've pivoted, Kavu, from more venture
19:52to a later-stage growth.
19:53We think that's safer, with better return profile
19:56on an IRR basis, and very simple stuff.
20:00I focus on need-to-have versus nice-to-have.
20:03The two sectors that I think are ripe for disruption,
20:05everyone loves their dogs, and the TAM is massive.
20:09We have a brand called Farmer's Dog
20:11that I think this room will be super excited about
20:13at some point, that is the largest
20:14and fastest-growing fresh dog.
20:15I didn't say talk your book, I said big prediction.
20:18You said personal, I said personal.
20:20There we go.
20:21And I think sodas are busted, and I'm giving Poppy
20:24as the modern-day soda for the next generation.
20:27So I feel those are two you guys are gonna say
20:29a year from now, wow, I remember you talked about them,
20:32I've never heard of them, and they're the brands of tomorrow.
20:34There you go, all right, Ma, give me
20:35a quick, bold prediction.
20:36Okay, area I'm excited about is actually cross-border,
20:39being at Mizuho Japanese Bank, there's enormous amount
20:42of interest in Japan, in the region.
20:44Not only is the stock market, it has rebounded,
20:46but also the government has been very focused
20:49on changing the mindset of corporates
20:51to be more open to foreign investment.
20:53So prediction, more interest by corporates,
20:56private equity, and overall investors in Japan.
20:59Great opportunity, so that's a commercial, too.
21:02Love it, all right, Nelson, take me home.
21:03Yeah, whether, obviously there's some hype in AI,
21:06but the energy in the Valley is back and exciting
21:10and companies are getting funded at a very rapid pace,
21:11so I think that's a longer tail, but 25 will be a year,
21:14some of the mega tech IPOs that you've been hearing about
21:17and we're really excited about that.
21:19Awesome, well, thank you all so much.
21:21Thank you.
21:21Thank you, everybody, appreciate it.
21:23Thank you.
21:23Thank you.