11AM Hour: Vista Equity Partners CEO Robert Smith, Honeywell Aerospace CEO Ahead of Spinoff & Medtronic CEO on Earnings 6/3/26

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This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Join host Keith Lansford for this information-packed daily market preview delivered in 10 minutes or less, including projected stock updates, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com or find Schwab Market Update wherever you get your podcasts. I'm pretty confident talking into a mic.

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David Faber (0:56)

Carl, of course, some moving from geopolitics back to our markets and M&A. I want to introduce my next guest. He is Paul Taubman, the founder, chairman and CEO of PJT Partners. For those who are unfamiliar, of course, a public company for the last 10 years. Paul, you and I, of course, go back, I hate to say it, but probably 30 years at this point. We were a young man back at Morgan Stanley back in the days. I would love to sort of talk about the current moment. Let's start with M&A. We can go a few other places as well.

We're seeing a certain manic level of activity in certain parts of our market, not so for mergers and acquisitions. You've made that clear, in fact, on your latest conference call and some of your comments. I don't want to call you cautious, but you certainly don't seem to be saying that things are on fire.

Paul Taubman (1:42)

Right. Well, maybe not cautious, but realistic. First of all, David, we've known each other forever. Great to finally be here and spend some time doing this.

I think the real answer is that we're in this incredible super cycle and you're seeing CapEx deployment like we've never seen it before, and you're seeing scale matter more, and the level of scale, the level of capital investment is truly unprecedented, and the M&A market is healthy. I'd argue the only thing that's gone easier is the regulatory environment. There's no doubt we're in an environment today that's fundamentally different than it was in the prior administration. All you need to do is look at the various indicia. In the last year of the Biden administration, there were six early terminations. First year of the Trump administration, nearly 400 There are these large scale deals, whether it's in utilities, rail, media, that never would have been presented in a different administration. So in that sense, it's never been easier in the recent past. But other than that, everything's gotten more difficult. Why? Well, I think part of it is boards are more engaged today than they've ever been.

I think shareholders are more vocal than they've ever been. Some of the easy deals that needed to have been done have been done. The private equity industry, which has been a locomotive for a lot of this activity, I think, has some fundamental challenges with many of their portfolio companies. And that locomotive is not running.

David Faber (3:23)

They're having trouble getting exits, of course. And if you can't get exits, it's hard to put the new money to work. I guess that's one of the underlying issues with PE, correct?

Paul Taubman (3:32)

Yeah, clearly. In the old days, not the old days, but a few years ago, the average hold was five years. Now it's seven years.

You're seeing more and more of these portfolio companies unable to transact at attractive prices relative to where they're marked. And I think until that gets unstuck, it's going to be very difficult for that industry, that ecosystem, to deploy the same quantum of capital that they did in other cycles. And I think that's holding back some activity.

David Faber (4:03)

But, you know, I am curious, I mean, you were giving me some statistics off camera. We're back at levels that we've seen in 07, 25 And we haven't really gone up in terms of M&A volume, despite the fact that the equity markets have increased, you know, I don't even know what the X is there, but a lot.

Paul Taubman (4:21)

Yeah, I think the equity markets are probably up 4X since 2007 on an equal-weighted basis. And to your point, M&A activity is about the same. There's the same level of concentration in deals. Big deals still make up the same proportion today than they did in 2007 You've got sponsors just as active today on big deals. The only difference is, in 2007, they had names like Blackstone and KKR and TPG, and now they have names like Musk, Ellison, Saudi Arabia. It's just that part hasn't really changed. But what has changed is if you go back to 2007, the S&P 500, the top 10 companies were 20% of the market cap. Today it's 43%, 44%, probably going closer to 50%.