Scott Christiansen (00:07):
Craig Castelli, welcome to the Root3 Pointer Podcast. Thanks for joining me today.

Craig Castelli (00:13):
Scott. Thanks for having me.

Scott Christiansen (00:15):
You founder Caber Hill Advisors. You work with middle market advisory, healthcare, manufacturing, facility services, business services. You do a survey every year to private equity groups, middle market private equity to just kind of get a pulse of the marketplace. So that’s what I want to talk to you about today. Kind of the big revelation is the optimism is back. Is that fair to say?

Craig Castelli (00:43):
I think that’s very fair to say. Absolutely. We started doing this podcast because we see and hear certain things in the market, but have a somewhat limited purview and wanting to socialize with the buy side. Private equity firms who are looking at hundreds if not thousands of deals every year, making investments across a variety of industries. Their feedback’s important and it’s important to our business owner clients who are trying to make decisions on if and when they make a move at any given year.

Scott Christiansen (01:13):
So what was the change in optimas like? You had like 82% respondents expect market strength to improve. I assume that’s up significantly from the year prior.

Craig Castelli (01:26):
So here’s something interesting and I can’t quantify the change for you. I didn’t pull up the prior year survey to compare the two, but everybody headed into 2025 full of optimism, us included. We thought it was going to be a great year and our pipeline in the first quarter matched that we had more top of funnel activity in Q1 of ’25 than we had in any prior year since we’ve been tracking data a certain way. And then liberation day happened when tariffs just took the wind out of the sails of virtually all M&A activity and basically nothing happened in the second quarter. So our response is, from what I recall when we did the survey at the end of 2024, we’re somewhat similar to what they looked like when we did the survey at the end of 2025, just for context –

Scott Christiansen (02:14):
Because it was the same.

Craig Castelli (02:15):
you’d go out in October,

Scott Christiansen (02:16):
None of this had happened.

Craig Castelli (02:16):
They get answered in November and it was a strong bull case. If you ask people the same question in May of last year, that’s really when the pendulum swung in the opposite direction.

Scott Christiansen (02:30):
That’s a fair point. So let’s talk about tariffs. Let’s talk about some of the things that disrupted the market last year. Really, nothing’s changed, has it? Or is it like Jeff Korzenik is Chief Economist at Fifth Third. He actually, I’m sure he didn’t make it up, but he calls it tariff fatigue and he has it factored into his model. People are tired of being tired of being worried about tariffs, and so business is just moving forward.

Craig Castelli (03:02):
I think that’s a great way to put it. I like to say it’s become background noise. We’re no longer whiplashed by the next headline, the next threat, the next announcement, and to the point you just made, we all realize we have to go forward. Our businesses are generally doing okay and the uncertainty is what killed us. It wasn’t so much the actual impact of any tariff or perceived tariff as much as it was the uncertainty because we saw as much fear from our clients who have zero tariff exposure whatsoever as we did our heavy industrial clients who may have some exposure to China who would directly be impacted by it. Deals got done on both sides there. Business owners have come to the realization that we’re starting to understand the rules of the game again, but when we all thought the rules were going to change, it was really hard to play.

Scott Christiansen (03:58):
Yeah. One thing that I noticed in your survey that I thought was really interesting is that the optimism appears to be more about volume than valuations.

Craig Castelli (04:11):
It’s interesting that you bring that up and yes, the general consensus is that valuations will hold steady. A few said they saw valuations creeping up, but by and large they thought they would see more deals, more deals get done, and valuations roughly consistent where they’ve been the last couple of years. I think unless we see a dramatic drop in interest rates, we’re not likely to see major changes in valuations. We really peaked coming out of COVID. We’ve settled back down at a lower level, but still very, very high. If you look back across prior decades, valuations are still near peak levels. What’s interesting though is while the expectation was that valuations would remain largely the same, one of the major concerns PE firms expressed about getting deals done this year is valuations getting too high. So I don’t know exactly what to make out of that. If it’s on one hand, here’s what we expect. On the other hand, here’s where the curve ball could come, but there’s at least the thought in the back of their mind that valuation could creep back up.

Scott Christiansen (05:25):
Anything that I didn’t ask you about in the survey that you thought was interesting that you wanted to bring up?

Craig Castelli (05:31):
Yeah, so I think if we think about the forces that are driving activity, first of all, we asked what we think will compel a strong market this year. The number one answer by far was dry powder. Dry powder is the cash that’s sitting on the sidelines waiting to be invested. Needing to be invested. It’s still there. We’ve been talking about dry powder for years. It’s still there. Private equity firms are raising bigger and bigger funds and there’s pressure to put that money to work. So we have on the one hand, dry powder driving deals. On the other hand, the number one and number three answers given when we ask the question about concerns that could impact their individual ability to get deals done in 2026. Number one was competition for deals. Number three was what I just mentioned with valuations rising and the deals getting too expensive. So if I’m a business owner and I’m thinking about going to market, I see a lot of capital that is waiting to get put to work, and I see this potential feeding frenzy as different private equity investors are afraid of competing against each other and the deal’s getting more expensive as a result. That’s probably where I want to be. That’s probably, when I say if I’m reasonably close to selling my business anyway, this is the time where I want to test the waters.

Scott Christiansen (06:50):
From a business owner perspective, that’s one of the most optimistic things I’ve heard for a business owner in at least a couple years.

Craig Castelli (06:59):
Yeah, it really is, and we are seeing it prove out on both sides of the equation with optimism and or maybe more just confidence coming back to the business owner community and the appetite for deals from the funds, the need to put money to work after a couple of less certain years.

Scott Christiansen (07:20):
Are you surprised at how resilient the middle market has been over the last few years? It was just kinda stagnant for a couple years with interest rates impacting the market and then the chaos of 2025, and I personally, I serve the middle market. I’ve been scared for the middle market, but it’s still strong. Like how?

Craig Castelli (07:52):
The middle market is the real economy. This is the real American economy, and again, despite everything that happened or could have happened last year, our economy’s pretty darn strong. And these businesses and the bets placed on these businesses reflect that.

Scott Christiansen (08:10):
Yeah, which is good.

Craig Castelli (08:14):
It beats the alternative.

Scott Christiansen (08:16):
Alright, it’s time for the Root3 Pointer quiz. I’m focused on the Winter Olympics for you. Okay, first question, this is rapid fire. Try to keep up. This is going to be exciting. The most exciting winter Olympic sport. Go.

Craig Castelli (08:34):
Oh, you’re going to hit me with that. It is the freestyle skiing moguls.

Scott Christiansen (08:38):
I understand why you answered that way, but you’re wrong. It’s biathlon, it’s prudent fact.

Craig Castelli (08:47):
It’s cool. It’s not fun to watch.

Scott Christiansen (08:48):
Moguls are tough, man. I just look at those and I just wish I was an orthopedic surgeon. Speaking of skiing, you’re a skier. You like to do dangerous things, you like to break things while you’re doing it. Which ski race records the highest speeds?

Craig Castelli (09:08):
Downhill.

Scott Christiansen (09:10):
I figured you’d just know that. Do you know what the average, not average speed, but what’s a really fast speed for downhill?

Craig Castelli (09:19):
They’re typically this week at least tapping out around 91, 92 miles an hour.

Scott Christiansen (09:24):
What’s the fastest?

Craig Castelli (09:26):
That’s both men and women by the way.

Scott Christiansen (09:29):
I know this is on your resume, but what’s your fastest speed on skis?

Craig Castelli (09:34):
I believe it’s 91.

Scott Christiansen (09:35):
91. What’s that feel like? Like you’re going to die?

Craig Castelli (09:41):
It feels like you are really on the edge of completely losing control.

Scott Christiansen (09:46):
Yeah. I mean when you see people wipe out going those speeds, like wiping out at those speeds when you’re going, do you just know that that’s just catastrophic if you do?

Craig Castelli (09:59):
I mean we all saw what happened to Lindsey Vonn, right? Which is horrible. I hold my breath and you just feel like every time somebody gets up you’re just, they’re a little bit lucky.

Scott Christiansen (10:12):
So speaking of ludicrous speeds in danger, if you can only do one, skeleton or luge? Feet first or headfirst?

Craig Castelli (10:22):
Let’s go skeleton.

Scott Christiansen (10:24):
I thought that would be an answer. I thought so. And have you skied any of these mountains that they’re on?

Craig Castelli (10:32):
Skied Cortina a couple years ago, which is they’re doing Cortina and Bormio and we did Cortina a couple years ago.

Scott Christiansen (10:39):
Nice. Nice. Alright. Do you have any Olympic questions for me?

Craig Castelli (10:44):
Ooh, why does Eileen Gu compete for China instead of the United States?

Scott Christiansen (10:53):
I know that she’s got 20 million in endorsements. I’m wondering if that has something to do with it.

Craig Castelli (10:59):
She says that there are already plenty of young girls who ski in the US and plenty of role models for them, and she wanted to reach a generation that is harder to reach and have a bigger impact.

Scott Christiansen (11:14):
That’s a good reason. I got to tell you, I’m impressed by these, I don’t know if you listen to Shaun White on the opening ceremonies, but this guy is such a business person. Eileen Gu is running probably a $50 million business, probably higher with her merch. There are some ballers in this game.

Craig Castelli (11:37):
While excelling at Stanford, by the way.

Scott Christiansen (11:40):
Yeah, yeah. It’s pretty cool listening to Shaun White, who was this teenager when we first met him and every country that came out and he’s like, yeah, I skied here. I was there two weeks ago. I was launching this brand. I was working with these athletes and from The Flying Tomato, Big Air, to multinational corporation. It’s pretty impressive.

Craig Castelli (12:08):
I mean, it can go both ways with so many of these people who find such success at a young age. And there’s obvious stereotypes with skateboarders and snowboarders and I mean, he’s just impressive through and through. He could do it in both Summer and Winter Olympics and now he’s building a brand that will create generational wealth.

Scott Christiansen (12:28):
Yeah, it’s pretty great. Well, thanks for joining me on the Root3 Pointers. Thanks for the information in the survey and they can get that at your website, Caber Hill

Craig Castelli (12:37):
Free download at our website for a limited time only.

Scott Christiansen (12:40):
Done. All right, thanks Craig.

Craig Castelli (12:42):
Thanks Scott.