Assuming the tariffs will heavily impact M&A activities, will RX and secondary advisory groups be more safe for SA 2025 returns since they're more countercyclical?
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Based on the most helpful WSO content, RX (Restructuring) groups are generally considered more countercyclical compared to M&A. During periods of economic downturn or when tariffs and other macroeconomic factors disrupt markets, RX activity tends to increase as companies face financial distress and require restructuring services. This makes RX groups relatively "safer" in terms of deal flow and job security during such times.
Secondary advisory groups, which focus on transactions in the secondary market for private equity or other illiquid assets, can also be somewhat insulated. These groups often see activity when investors look to rebalance portfolios or exit positions due to market uncertainty. However, their performance can vary depending on the specific market dynamics and investor sentiment.
For SA 2025 returns, RX groups are likely to be a safer bet if tariffs and other economic pressures significantly impact M&A activities. Secondary advisory groups may also hold up well, but their resilience will depend on how the secondary market reacts to broader economic conditions.
Sources: Top Restructuring Groups 2019 & Restructuring Questions, Wharton kids favor restructuring/distressed investing?, Pros & Cons Summary - Post-MBAs in Restructuring (RX) - any regrets?, State of the Houston IB Scene - 2022, Rothschild NYC Groups
Seems about right. Secondaries will slow down during corrections, a couple of quarters or so
apparently all the secondaries ppl are getting slammed rn
It's a little early to figure out if RX will fare better through tariffs. We aren't sure how companies will adapt to the tariffs since we're still in early days. If the assumption is companies will not be able to adapt to a new tariff environment and get squeezed then RX will probably pick up business. I think many companies are in a holding pattern right now as they observe the market and economy so transformative transactions such as M&A will slow down but that doesn't mean M&A is dead. Some companies will just wait to see what ends up happening and can execute an acquisition once they have more clarity.
Secondaries will likely be active throughout the next few years not because of tariffs specifically but because GPs and LPs are looking for liquidity which they have been looking for even before the new administration. Tariffs will create uncertainty in the market which helps this need for liquidity trend but it's not the sole reason. PE firms have held onto portfolio companies for longer than ever and this has created a liquidity problem for everyone. The solution has been secondaries with volume and the market at record highs for the past couple years. I expect this trend to continue regardless of the tariffs regime since PE firms have found secondaries as a viable solution for them to achieve liquidity for a finite fund life which has always been a consideration for PE firms when they fundraise. Tariffs won't change the idea of an expiring fund seeking liquidity but it may accelerate liquidity since some investors may want to transact sooner to avoid any potential long-term pitfalls from tariffs such as a recession.
Don’t know about RX, but I would agree regarding secondaries. However, I would add that secondaries is NOT “countercyclical” but rather “acyclical” as secondaries has its own inherent market factors (e.g. as mentioned above, lack of liquidity, public / private allocation rebalancing amidst broader market volatility, etc.) that drive volume.
I’d emphasize this, historically it hasn’t been very correlated with broader markets. Sure, if there’s a deep prolonged recession that can definitely drive LP selling volume but there’s other factors at play that drive volume.
Even on the GP-led side, although muted exit activity has driven volume as of late, the previous peak was in 2021 when M&A volumes were at an all time high so, again, not very correlated. In the drawdown of 2022, it definitely slowed things down a bit just because comps were down so bid ask spreads were higher making it harder to get deals done but high quality deals still transacted.
I would argue secondaries are cyclical in that they tend to function well when broader markets, particularly public equity, work. This is because secondary buyers essentially price based on NAV and they can bid lower discount/PAR/premium when there is confidence in the NAVs. When markets dislocate or are declining, confidence in those NAVs drop, discounts spike (to compensate for higher uncertainty) and sellers pull assets because they don’t want to crystallise a mark down.
Why would Rx activity not increase during tariffs?
Yes wondering the same — shouldn’t RX be countercyclical?
Question for the RX folks - there’s a lot of data indicating fewer formal rx/bankruptcy as many sponsors opting for the LME route (least initially). Do RX teams get involved in LMEs?
yes, but advisors/consultants get the benefit of this more than the bankers
I mean yes? LMEs are basically just out-of-court restructurings
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