Good morning, and welcome to Lincoln International's third quarter 2026 earnings conference call. During the company's opening remarks, all participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After the company's opening remarks, we will open the call for questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then one again. Please note, this event is being recorded. At this time, I would now like to turn the call over to Alexandra Deignan, Chief Marketing Officer and Head of Investor Relations. Please go ahead.
Thank you, Krista, and good morning, everyone. Welcome to Lincoln International's earnings call for the third quarter of 2026. Earlier today, we posted our earnings release and an investor presentation on the investor relations section of our website at www.lcln.com. A replay of today's call will also be available on our website following the conclusion of the call. Before we begin, I'd like to remind everyone that today's discussion may contain forward-looking statements. These statements are based on management's current expectations and are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied. For a discussion of these risks and uncertainties, please refer to our earnings release and our filings with the SEC. Except as required by applicable law, Lincoln International assumes no duty to update or revise these forward-looking statements.
In addition, during today's call, we will discuss certain non-GAAP financial measures. We believe these measures provide useful supplemental information to investors regarding the performance of our business. Reconciliations of non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release and our investor presentation, which is available on our website. Joining me on today's call are Rob Brown, Chief Executive Officer, Ted Heidloff, Chief Financial Officer, and Eric Malchow, President and Global Head of M&A. Rob and Ted will provide opening remarks, then we'll open the call to questions. With that, I'll turn the call over to Rob.
Thank you, Alli, and thank you to everyone for joining us this morning. We are pleased to report another strong quarter with record revenues and adjusted earnings for the third quarter. Our results reflect sustained momentum across our business and improving transaction environment, and the benefits of the strategic investments we've made to fortify and diversify our platform. Both investment banking and valuations and opinions delivered robust year-over-year revenue growth, demonstrating the breadth of our capabilities and our ability to capitalize on opportunities across the private capital markets. Our M&A business continued to show strength, particularly across industrials and business services. For the second consecutive quarter, we generated the largest transaction fee in our firm's history. This underscores the continued evolution of our franchise and our ability to compete successfully for larger, more complex mandates. Beyond M&A, our capital advisory practice achieved record third quarter and year-to-date revenues.
This performance was supported by increased demand for financing solutions, particularly refinancing activity. Our private funds advisory practice continues to see strong demand for general partner-led advisory and fundraising. The growth in these businesses reflects the investments we made in senior talent to enhance financing solutions for our clients, broaden our addressable market, and increase productivity. Our valuations and opinions segment generated record quarterly revenues. Within our portfolio valuations business, this was driven by continued execution of the strategy to deepen existing client relationships, expand the breadth of asset classes valued, and increase the frequency of valuation services delivered. In addition, our transaction opinions business delivered solid growth in the quarter, and we saw particular strength in secondary transactions. To put these results into context, I want to spend a few moments discussing the broader market dynamics and some of the trends we're seeing.
The improving M&A environment we discussed in the second quarter continued into the third quarter. While buyers clearly remain selective and the pace of recovery varies across the sectors, we remain encouraged by the momentum in transaction activity, including increasing engagement from private equity sponsors. The high-quality businesses with compelling growth opportunities continue to attract significant interest and drive competitive processes. At the same time, we continue to see greater transaction activity among companies that previously faced more challenging market conditions, which we believe suggests a broadening recovery. It is not new news that private equity sponsors remained under pressure to generate liquidity, driven by extended hold periods, a selective fundraising environment, and increasing demand for distributions from LPs.
Combined with substantial capital available for deployment and largely good company performance, which we can see in our valuation data, we believe these dynamics provide a constructive foundation for a continued improvement in M&A activity. From a financing perspective, our capital advisory practice is benefiting from several durable demand drivers, including elevated borrowing costs, growing demand for liquidity, and the debt maturity of portfolio companies acquired in 2021 and 2022. Capital clearly remains available for high-quality transactions. At the same time, we are seeing foreclosure activity increasing as lenders tighten operating constraints and financial sponsors are increasingly unwilling to provide additional capital where there is no path to equity returns. With this backdrop, private equity sponsors are actively seeking creative capital structures to preserve liquidity or generate distributions. Beyond the recovery in transaction activity, we continue to see important structural changes reshaping the private markets.
First, the growing participation of private wealth and individual investors is expanding the investor base. This trend is increasing demand for transparency and frequency of independent valuations. Second, the continued expansion of alternative investments into a broader range of products and investment structures is also driving higher demand for increasingly complex valuations. These trends are particularly pronounced in private credit, including both direct lending and asset-backed finance, and are increasingly evident across private equity and secondary funds. We believe these developments create meaningful long-term growth opportunities for our valuations and opinions business. Our ability to capture these opportunities reflects years of deliberate investment in our platform to broaden our capabilities, sharpen our sector expertise, and strengthen our competitive position. Importantly, we're beginning to see the benefits of these investments in the productivity of our people, supported by larger fee sizes and stronger backlog conversion.
We remain focused on capitalizing on this momentum through a balanced approach to developing our next generation of leaders while selectively recruiting experienced talent in strategic growth areas. In Europe, we continue to see attractive opportunities as we strengthen our sector and product expertise across the region. During the third quarter, we welcomed three new managing directors, including new leadership for our European financial services practice, expansion of our consumer sector in Germany, and expanded coverage in Italy. Year to date, we have hired 10 managing directors, complementing the six managing directors promoted internally at the beginning of the year. It should also be noted that we have the largest cohort of directors in our history currently going through the managing director promotion process for this year end.
We believe balanced investment in both the internal development of our people and selective lateral hiring preserves our culture and accelerates our long-term growth. Technology is another important area of strategic investment as we advance our core systems, strengthen our data infrastructure, and enhance the capabilities available to our people. Artificial intelligence is increasingly making our people more effective and efficient. As we look ahead, we are operating from a position of strength, supported by healthy pipeline activity, continued client engagement, and a constructive transaction environment. While macroeconomic and geopolitical uncertainty remains, we view economic resilience and market stability as the most important drivers of private capital markets activity. We are focused on continued investment in our people, technology, and global platform to further strengthen our culture and our competitive position, all to better serve the evolving needs of our clients.
With that, I would like to turn the call over to Ted to review our financial results in more detail.
Thank you, Rob. Our record third quarter results demonstrate the strength of our diversified business model, with robust revenue growth across both segments and disciplined expense management. Furthermore, our balance sheet flexibility and strong cash flow generation provide a solid foundation for continued investment and long-term growth. Before reviewing our financial results, I would like to note that my comments today will focus primarily on adjusted financial metrics. In addition, our acquisition of MarshBerry in October of 2025 continues to affect year-over-year comparability. In the third quarter, we generated revenues of $293.7 million, an increase of 57% from the third quarter of 2025 and 30% from the second quarter of 2026. Adjusted diluted earnings per share were $0.46. As we completed our IPO in May of 2026, there is not a comparable earnings per share figure for the prior year period.
For the first nine months of 2026, revenues were $677.1 million, representing an increase of 45% from the prior period, and adjusted diluted earnings per share were $0.87. We are pleased with the revenue growth we've generated year to date, which reflects improving transaction activity, the impact of our acquisition of MarshBerry, and the return on investments we've made across the platform. For the third quarter, investment banking advisory revenues were $239.9 million, up 70% year over year. We closed 93 transactions during the quarter and 237 transactions year to date. Average fees increased this quarter, driven in part by the largest transaction fee in Lincoln's history. Notably, average fees also increased, excluding that transaction. As Rob Brown noted, this milestone reflects our ability to compete for and execute larger, more complex mandates, while transaction volume remains an important driver of growth.
For the first nine months of the year, investment banking advisory revenues were $527.5 million, representing growth of 51% compared with the prior year period. For the quarter, valuations and opinions revenues were $53.8 million, an increase of 18% year over year. During the quarter, we completed 25% more portfolio valuations compared to the prior year period, bringing the number of portfolio companies we value on a quarterly basis to approximately 7,600. Transaction opinions activity also remained strong, with an increase in the number of opinions completed during the quarter. For the first nine months of 2026, valuations and opinions revenues were $149.7 million, an increase of 25%. We continue to benefit from the growth of the private capital markets and the increasing need for independent valuation and transaction-related advice.
Turning to expenses, adjusted compensation expense was $179 million during the third quarter, resulting in an adjusted compensation ratio of 61%. For the first nine months of 2026, the adjusted compensation ratio was 61%, which is consistent with our expectations for the full year. Our compensation philosophy remains focused on attracting and retaining exceptional people, rewarding performance, and aligning employees with long-term shareholder value creation. We believe this approach provides flexibility to continue investing in talent while maintaining appropriate discipline around compensation expense. Adjusted non-compensation expense was $42.7 million during the third quarter of 2026, compared with $33.6 million in the prior period, resulting in an adjusted non-compensation ratio of 15%.
For the first nine months of the year, adjusted non-compensation expense increased 20% compared to the prior year period, resulting in an adjusted non-compensation ratio of 18%, which is an improvement of 360 basis points year over year. We remain focused on managing expenses while investing selectively in areas that we believe will generate attractive long-term returns. Technology remains one of those areas, including our broader enterprise technology infrastructure and AI capabilities. We believe these investments can enhance the effectiveness and productivity of our people while supporting more efficient growth over time. For the third quarter of 2026, adjusted operating income was $71.9 million, representing an adjusted operating margin of 25%. For the first nine months of 2026, adjusted operating margin was 21%.
Shifting to taxes, our adjusted effective tax rate was 31% for the third quarter and the first nine months of the year, which is in line with our full-year expectations. Turning to the balance sheet, we ended the nine-month period ended September 30th of 2026 with approximately $363 million of cash and cash equivalents and $102 million of long-term debt, resulting in a net cash position of $261 million. Our balance sheet continues to provide meaningful financial flexibility to support our growth strategy, including organic investment in our people and technology, selective acquisitions, and returning capital to shareholders. Finally, our board of directors declared a quarterly cash dividend of $0.07 per share, which will be paid in December of this year. We remain focused on maintaining a disciplined and balanced approach to capital allocation, with the objective of supporting long-term growth and creating value for shareholders.
With that, I will turn it back over to Rob.
Thanks, Ted. Listen, we are encouraged by the momentum across our business right now, and we remain confident in our ability to build on our success. The intentionality and institutionalization of our culture has resulted in the ability to attract, retain, and engage talent over the long term, which we believe continues to be our most sustainable competitive advantage. I want to thank all of our employees for their continued contributions and commitment to our firm, as well as our clients and shareholders for their ongoing trust and support. With that, let us open it up to questions.
Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then one again. At this time, we will pause momentarily to assemble our roster. Our first question comes from Brennan Hawken with BMO Capital Markets. Please go ahead.
This is Josh Brechtel filling in for Brennan Hawken. Thanks for taking the questions this morning.
Hey, Josh.
Our first question. Hi. Our first question is going to be on MarshBerry . I understand the acquisition is about a year from close. I know some of the wealth comps have had a tough year to date. Could you give us an update on how MarshBerry is performing and what you are seeing in your end of the market?
Yes, and we did. We celebrated the one-year anniversary of the closing of that transaction on October 31st. I think just stepping back, if we think about the strategic and commercial case to do that deal, as well as the cultural case when we went into it and where we sit a year later, we could not be more pleased with both. Their year is more back-end loaded than the rest of our investment banking business, and that tends to be the nature of their business. Their backlog is at an all-time high, and they are going to have good performance. We could not be happier with that acquisition. I will say, we closed that really in the face of the public insurance comps really being down. Those have come back a bit.
But that was a very important acquisition for us and really bringing us industry expertise that is incredibly relevant to our legacy private equity clients.
Perfect. Appreciate the color. Then just kind of wanted to dive in a little bit more on sponsor activity. You kind of noted in your opening remarks that you guys have seen strong sponsor increasing activity throughout the year. Just kind of where is it tracking relative to your expectations, and how are you thinking about the outlook in the year end in 2027, and what kind of gives us that next leg up?
You know what? We've got Eric Malchow, our Global Head of M&A, on the call here. Eric, I'm going to turn that one over to you.
Yeah. Thanks, Rob. Good morning. As Rob mentioned in his opening comments, demand is strong. Buyers remain selective, but we're seeing continued momentum that we saw the shift in Q2. But I think most importantly, buyers and sellers are entering the market with a constructive mentality, and we're seeing strong activity for A assets. We're seeing hyper-competitive processes. But I think importantly, we're seeing more and more activity for B and C assets as we get farther away from the 2021 and 2022 acquisitions. There's a large population of those companies sitting in private equity. There's a desire on the part of private equity to move on from those assets and redeploy their capital.
I think importantly, and I think this is a broader statement regarding your question, we're taking share from our competitors, and we're taking share in the private equity community, and I think that's a result of a couple of things. First of all, if you take a look at our coverage model, we think it's differentiated, and we think it's differentiated in a couple of factors. First, with our relationship managers developing authentic and trusting relationships, which help us identify the right opportunities for our firm. You overlay that, what we think is a proprietary business model on how we track assets.
There's a very specific business plan for each one of the assets that we're covering, and it's not just to sell the asset, but if you think about the platform that we've built and the full suite of capabilities that we have, and you think about what our vision is to be the best advisor, we take that approach to private equity, looking to add value and fill the needs that they need when they need it. So by taking that advisor mentality, bringing the full suite of Lincoln's products, we're continuing to take share with private equity. And I think as importantly, I'd lay on top of that, if you think about where we play from a transaction value perspective, $250 million to $2 billion, although we're punching above that weight, you're seeing more activity both with the A, B, and C assets.
Combination of all of that activity is resulting in stronger activity and us taking share against our competitors.
Yeah, I think the only-
Got it. That is very helpful.
The only thing I would add to that, all that is true, and we are still not in a great sponsor market. I think we are in an improving sponsor market that, I think, and you have heard me use this analogy before, it is an ice dam that is melting, and we continue to see it melt.
Yeah, sounds good. Appreciate the color, and thanks for taking my questions. Appreciate it.
Your next question comes from the line of Connell Schmitz with Morgan Stanley. Please go ahead.
Morning. Thanks for taking my question. First on investment banking, given the strength that you have seen year to date, are you still expecting Q4 to roughly equate to around 30%-40% of annual revenues, or is the pull-forward in Q3 impacting that view today?
We are definitely looking to still see it in that range. We did have a large deal that we expected in Q4 that we referenced that closed in Q3, but we are still expecting Q4 to be in that range. Our expectation is it will be in the lower end of that range.
Got it. Very helpful. Then on hiring, in the overall MD base, you spoke to a large cohort of MD promotes heading into next year. Can you help size this potential MD base growth from here, just given the promotes as well as your expectations for lateral hiring, and any potential for near-term acquisitions? Then within that, which areas of white space are you most focused on?
There is a lot to unpack in that question. It sounds like you were in our board meeting yesterday. I think we do have a large cohort of internal promotes, the largest we have ever had, and I think that is a result of several years ago, we really stepped back and took a much more disciplined approach to how we promote MDs so that we could really increase the probability of MDs hitting the ground running and being successful. I think that rethinking of it has probably resulted in a little bit of an elongation of the period to become an MD, and we are seeing that kind of catch up. But it is by far the largest class we have had going through the cohort this year. We are in some really interesting ongoing discussions with managing directors.
We have several who have committed to us that we expect to start in Q1, so we think that is going to continue. We have seen that slow down a little, obviously, and we talked about this, I think, on the last call. At the end of 2023, when we were really kind of in the middle of this M&A winter, we took a very deliberate approach to really map our whole organization, determine where did we have the greatest need for lateral hires, and had a very aggressive hiring campaign in 2024 and 2025. We are seeing that slow down, partly because it is more competitive to hire, partly because I think a lot of the good people have already moved platforms. With that said, we continue to have good candidates in the pipeline, and we are seeing it really globally. We are seeing it in Europe and in North America.
With regards to acquisitions, we referenced the MarshBerry deal, having done that deal a year ago, which is one of the largest deals in our space. Then having gone public, anybody that has anything to sell is coming to us and talking to us. So, our pipeline of potential opportunities has never been better, and there are a handful of opportunities that are bubbling to the top that we think could strategically be very impactful for us. That is from an industry standpoint, a product standpoint, and a geographic standpoint. We will have more to report on those if they become more actionable.
All right. Super helpful. Thank you, Rob Brown.
Your next question comes from the line of Ben Rubin with Evercore ISI. Please go ahead.
Hi. Thanks for taking my questions. I wanted to ask specifically about M&A and maybe the early outlook for 2027. Based on your historical disclosures, your advisory fees have grown at, let's say, a mid-teens clip over the past decade, and you guys are clearly tracking well above that rate this year with some of the larger fee events that you flagged, both in 2Q as well as again this quarter. As you think about 2027, how do you weigh your backlog and maybe some of the readiness of some of these sponsor companies to come to market next year with some of the really strong growth you've seen in 2026? Maybe said another way, do you see another year of above-trend M&A growth in 2027, or does some of the non-M&A pieces pick up the slack, as we look to next year?
Why don't I start with answering the M&A side of that question, which is, what gives us confidence as we think into 2027? I'd give you a couple of factors. The first one is our backlog is at near record levels. I think importantly, if you peel back that onion and you look at the backlog where we've scrubbed it for quality, the backlog is strong in terms of quality. Rob mentioned in his opening comments the underlying performance of those businesses, so that's helpful. If you take a look at, and we had an organizational meeting earlier this week where we look at new business activity, and if you look at the September and October pitches just in North America alone, the consecutive month pitch activity is as strong as it's ever been. So that gives us a lot of confidence going into 2027.
The other thing is, if you look at the backlog, Rob and Ted mentioned the very large fee that we had this year, or this quarter, excuse me. The record, or excuse me, the double-digit number of fees that we have in our backlog is at record highs. Again, back to your comment about the portfolio companies, I would go back to our coverage model where we've been tracking these businesses for in excess of three, four, and five years, adding value to these companies and knowing when they're going to come to market. Although it'll be a pitch opportunity, we think in many of these situations, we've got the pole position and there's evidence of the strong win rate that we have across the industry groups that we operate in. You want to hit the non?
Yeah. I think it's a good question. One of the things, we talked about this on our roadshow, when we came out of the global financial crisis, our focus really since then has been to build a diversified platform and to be diversified across industry groups within our M&A business, to be diversified across product groups, and to be diversified geographically. I think we do believe our non-M&A business within investment banking are going to have outsized growth next year. I think partly as a result of, we've actually invested in a lot of senior talent in those businesses. As a percentage of the MDs, those two businesses have probably had the biggest investment in the last several years. We also have some initiatives on how can we really cross-sell better or bring the whole suite of solutions better to our clients.
We think that initiative's going to pay off as well. Industrials and services are having great years this year, right? Our view is, different industries go in different cycles, and maybe those hold up, maybe they don't, but we think other industries will have cycle ups, other products will have cycle ups. When we look at our entire suite of services and industry expertise, we feel confident of sustaining that kind of mid-teens growth that we've had.
That's great color, guys. Yeah, definitely an important question as we start to look to 2027, so thanks for addressing. My second follow-up is on maybe a two-parter on the change in your comp structure, maybe a question more for Ted Heidloff, and how that's playing into recruiting and retention. You mentioned in your prepared remarks this record pipeline of senior talent eligible for promotion next year. I guess my question is, what has been the reaction internally to the move from deferred cash to deferred equity, and also the additional year of vesting? Maybe how does that play into both the internal dialogues as well as some of the recruiting discussions you're having externally for senior talent?
Yeah. Ben, I think one of the things, our compensation philosophy hasn't changed, first and foremost. Again, the change that you're referencing is really only attributable to our managing directors, many of whom have been really positive in terms of having more equity and building more wealth over time. It's certainly been, the change has been well received by a lot of our bankers and functional teams as well to have the opportunity to own more equity as we move forward here. So that's been really positively received by our employee base. Again, we've tried to, in our transition to becoming a public company, change as little as possible for the vast majority of the organization to keep everyone focused on clients. As it relates to recruiting, maybe Rob Brown, you-
Yeah. I'd build on Ted's point, and I think we mentioned this before. As part of the IPO, we gifted RSUs to every employee in the firm. So everybody is an owner in the firm, and I think is focused on the equity value of the firm. So the change from deferred cash to stock has really been a non-issue. Now, our stock's been up, so that's always great. People, it's viewed as a positive. That's been a non-issue. On the recruiting side, it really hasn't been an issue at all because our biggest asset in recruiting is our culture. People want to be part of a culture that has had the employee retention and the growth that we've had.
The financial package to get somebody to come over, you have to be competitive, you have to be market. In our recruiting, and really at all levels of the organization, not just senior talent, the deciding factor of somebody deciding to join us or not, whether it's the RSUs or deferred cash, that's pretty far down the list. It tends to be culture.
Maybe just as a follow-up there, Rob, has the brand as a public company helped more so in those conversations?
Yeah, that's a really good question. It has, and I think we were told by other people that have gone public that you do get kind of a brand lift. Some of it is people just didn't know the breadth and depth and reach of our company, and now that they do. Interestingly, we've seen more brand impact in Europe, partly because I think our brand, given that we're a U.S.-headquartered company, it was more well-known in the U.S. I think in Europe, being listed on the New York Stock Exchange, in some ways has more cachet outside of the U.S. than in the U.S. So, we have seen more people coming to us, and the caliber of people that want to engage in discussions, I think across the firm as a whole, but a bit more pronounced in Europe.
Great color. Thanks, guys, for taking my questions.
Your next question comes from the line of Alex Bond with KBW. Please go ahead.
Hey, good morning, everyone. Thanks for taking the questions. Maybe just to follow up on the last point about Europe, maybe it would be helpful if you could just speak to, when you look across the pipeline right now, if you're seeing maybe more relative strength in the U.S. versus Europe or vice versa, and maybe just near-term expectations for the two regions as you look out over the next couple of periods. Thank you.
Yeah, year to date, we're seeing more strength in the U.S. than in Europe. I think Europe's still going to have a good year. Europe's forecast is more back-end loaded. MarshBerry and Europe, if we think about more in the fourth quarter, those are two areas. But if you look at our improving win rate in Europe, if you look at the increase in the quality and the size of transaction that we continue to see us working on in Europe, we're bullish about Europe. The U.S. is, I think, going to be the biggest part of the business for the foreseeable future.
We had some people at SuperReturn in Berlin and talking to LPs, and what some LPs will say is they want to allocate more money to Europe because they believe that in the U.S., there's industries that are much further along the consolidation path than in Europe, and there's opportunities there. So, we think there's going to be capital deployment in Europe. We think we have the right strategy in Europe with feet on the street in the right local economies and being globally coordinated. So, to date, U.S. has been stronger, but I think our mix between U.S. and Europe, historically, we don't see that changing materially this year or next year.
Great. Okay, that makes sense. You also highlighted and spoke to the elevated amount of MD promotes and turnover you all have had over the last few years. Just wondering if you could comment on where you are in the broader ramp cycle on that newer cohort that are on the platform today, and if some of the strong year-to-date revenue trends, in your view, are maybe attributable to that base ramping at an accelerated pace. Thanks.
Yeah, interestingly, a little bit year to date, but more to come. We were talking about this yesterday. I think if you look at the MDs we've hired in 2024, 2025, and 2026, we'd say kind of 20% are kind of ahead of where we expected the ramp to be, and those are the ones we're starting to see in our historical numbers. We'd say 20% are below or in some cases not here anymore. The middle is kind of ramping up the way we would expect. I think one area that we're really seeing some recruits have a more pronounced impact on the business is in aerospace and defense. We hired a couple of MDs a couple of years ago, as well as in kind of specialty distribution. I think the ramp is kind of where we wanted it.
In our backlog right now, if you look at that cohort, that cohort accounts for X percent of our backlog.
Great. Very helpful. Thanks, Rob.
Your next question comes from the line of Steven Chubak with Wolfe Research. Please go ahead.
Hi, this is Annie on for Steven. I wanted to just start with a question regarding the impact of midterms and whether you could speak to how you anticipate the midterms will affect deal activity across different sectors, and any sectors you expect will be more or less impacted.
Yes, very good question, very timely question. I think for us, if we look at these midterms, and we've commented on this before, in our market, what really helps drive activity is stability. In some ways, if you have divided government where there's checks and balances and you have an executive branch that's one party and Congress another party, it's very hard for either party to over-advance their agenda, and that tends to create a little more stability. So, I think just in general, a feeling of stability should be good for activity in the private capital markets. I don't know if this is going to be the case or not, but the one thing we have seen drive activity in the past is when there is a feeling that Congress or the government is moving towards increasing capital gains rates.
If we start seeing that, you may see some accelerated activity. But I think, in general, midterms don't move the needle much. This was a very, I think, unique midterm in that it was such a one-sided midterm. But I think for us, our hope and our belief is that the stability of a divided government is going to result in more activity. We've heard others comment on kind of the regulatory environment. Obviously, the regulatory environment right now is very good for transactions. I think if you believe that's going to change, maybe you accelerate something. For us, I don't see that element affecting our business as much. As Eric Malchow mentioned, the sweet spot of where we play tends to get less regulatory scrutiny anyway, just based on size.
Okay, great. Thank you. And then just wanted to ask a follow-up question regarding tax code Section 162(m). It appears this tax change, which goes into effect next year, could limit tax deductions by increasing the number of covered employees. So I was hoping you could provide any preliminary guidance as to how impactful this could be to your go-forward tax rate beginning in 2027 versus the current baseline.
Yeah, Annie, it's definitely something we're evaluating for next year. It certainly depends on the compensation environment. As we move forward, there will definitely be some upward pressure on the tax rate, but that's consistent with everybody across the industry. I think we tend not to have as much revenue concentration across our MD base as perhaps some others. So, I think that should be somewhat of a mitigating factor. But you're right, that will create upward pressure as we move forward, but a lot of variables there continuing to model it.
Okay, great. Thanks so much.
Your next question comes from the line of James Yaro with Goldman Sachs. Please go ahead.
Good morning, and thanks for taking the question. Rob, are higher interest rates having any meaningful impact on your clients? How are sponsors reacting, if at all? Is it the sharp move upward in rates that has more of an impact, or just an absolutely higher level of rates?
Yeah, very good question. I would say to date, we're not seeing it affect our business. In fact, if anything, to date, probably is helping our capital advisory business. About 30%-40% of what we're doing there is stressed or distressed. So, a cost of capital can push something into needing more of that work. We're not seeing it affect the M&A business. Eric, you may want to talk about kind of why we think that's the case.
James, I would say a couple things. First of all, there is increasing pressure for private equity to deploy assets. The increase of interest rates on the margin is not impacting a sponsor running hard after an A asset. The opportunity cost of not putting those dollars to work is far greater than or putting them to work is far greater than not putting them to work. I think also importantly, the strategic buyers that are coming to our processes and competing in our processes, there's often significant synergies that are outweighing any marginal increase in the cost of capital. So, in theory, you would think that the rise in interest rates would decrease in values, but we're just not seeing it in our marketplace. If it's predictable, if it's small in interest rate increase, it's just not going to impact it.
Yeah. James, I think you alluded to something. I think if you have a rapid rise where people don't know where it's going to end, then that gets back to creating instability. It doesn't seem like that's the interest rate increase environment that we're in. We'll continue to monitor it, because obviously conventional wisdom is the higher cost of capital, lower values. I think what's driving transaction activity, and we've mentioned this in the comments as well as the questions, we'll continue to monitor it, but right now, we're not overly worried about it. In fact, there's some thought that the interest rate increase could be the catalyst for some sponsors to maybe mark down some of their businesses that are overvalued and could result in more activity. But that remains to be seen.
Fascinating. Okay. That actually brings me to my second question, which is on valuations and opinion part of the business. Hoping you might be able to just talk a little bit about two trends there that are not related necessarily just to the market backdrop. The first is the impact of the continued shift to more frequent valuations, either monthly or daily, and how this has evolved over, let's say, the period since the IPO. Then number two, the impact of some of the newer products that you've built in this business, the S&P Lincoln Senior Debt Index and the Lincoln Private Market Index being the two that I'm thinking about, and how the growth of those two products has gone.
Yeah, good questions. In terms of the frequency of valuations, James, we just see that continue. I think when we were on the roadshow, we quoted that over 30% of our valuations are now done more frequently than quarterly, and largely driven by the retail money that's coming in. When you have to have redemptions on a more frequent basis than quarterly, you need valuations. We're seeing that number has gone up. I think the last I heard in talking to Brian was it's kind of mid-30s now. So, we are seeing that continue. You've had some large asset managers come out and say, "We're just going to value everything daily because we want to." So, part of it is the redemptions. I think part of it is there's just a shift for more transparency.
So, that trend is continuing, and there's no indication that that's going to stop. Also on that point, the question on how do we see the midterms affecting? To the extent there are more regulations for this business, regulations tend to be good. So, we'll see what plays out there. In terms of the product, as we previously communicated, we, earlier this year, announced the S&P Lincoln Senior Debt Index, and we brought that to market. We signed up contracts. We continue to feel that this index will become, and if it's not already, kind of the benchmark of choice over time. In Q3, we launched the monthly and sub-industry indices for this, with a very favorable market reaction. Nobody else is doing that on a monthly basis.
So, we're still not modeling any of this in a material way into our revenue streams, but we think that this is a product, there's a branding element to it, and we think ultimately, this has the ability to have an impact on earnings.
That's very helpful. Thank you.
Your next question comes from the line of Devin Ryan with Citizens Bank. Please go ahead.
Good morning, everyone. Thanks for taking the questions here. I want to come back to the opportunity that you guys highlighted several times around larger fees, and just trying to understand what's driving that and mapping this out into the future. I mean, I'm curious, is that mainly just payoff from just building relationships over a long period of time, and so Lincoln's just getting involved in larger assignments as you win those customers over in trust? Or is it about expanded capabilities, and so now you're opening up maybe a different part of the market that wasn't there for you before? Then, connected, just are there certain verticals here where you feel like you have more of a right to win, at least initially here? Thanks.
Good questions. I would say to you that it's an evolution of our business. If I go back to my prior comments, which is, we have built a platform over time that's, one, diversified, but two, full-service products and building value for those portfolio companies over their hold periods. Our goal is to serve the entire life cycle of that company and have round trips, so perhaps sell that business when it's 15 million of EBITDA, then 40 or 50 million of EBITDA, then maybe 100 or 200 million of EBITDA. You're seeing that. To your sector question, there are different maturation levels of our industry groups, and we've had particularly strong success this quarter, for example, in data centers and power, and those, we've got the leading position there.
We're taking advantage of the structural trends in that market, but also the expertise that we have in that market. No different across other groups like services or healthcare or even technology, where we've had multi-billion dollar deals, and it really goes to the long-term investments that we made that are now paying off, because of the expertise that we have, the deals that we've done in that space, the value we're adding to the private equity groups and the portfolio companies that we are tracking. Anything you'd add?
Yeah. I would just say none of this is a change in our strategy. None of this is, "Hey, we have a strategy to go upmarket." I think both Lincoln and I think many of our peers, I think our clients are realizing that firms like us, our expertise in M&A, the industry expertise that we've built up over decades, the disciplined processes that we run, can be really, really effective at all sizes of business. So, I completely agree with Eric Malchow. I think it's just, it's advising companies over decades, and deals beget deals. When you've announced larger deals or more complex deals, then more of those tend to come to you. So, I think it's been a function of a lot of building blocks over a long period of time, that have put us in a position to continually advise on better, larger, and more complex transactions.
Appreciate that. Great color. Just a model question. I don't think I missed this, but on non-compensation costs, the outlook last quarter, I think you framed for full-year growth in the high single digits off of the, I think the comparable base was $157 million from 2025. The third quarter of $43 million was better than we had modeled, so that would seemingly imply something in the low $50 million range in 4Q, if that's still the right framework. So, just checking to see if that's still the right framework, and any modeling help would be appreciated. Thanks.
Yeah, Devin Ryan, thanks for the question. Yeah. We continue to expect high single-digit growth for non-comp on a pro forma basis once you add MarshBerry. Q4 tends to be a little bit seasonally higher as you work through some of the year-end billing for firms like consultants, things like that tend to come through in the fourth quarter there. But yeah, consistent expectations with high single digits for the full year.
Okay, perfect. Thanks so much for taking the questions.
This concludes our question and answer session. I would now like to turn the conference back over to Rob Brown for any closing remarks.
Really just thank you all for the engagement today. Hopefully what came through is that we believe we are well-positioned to capitalize on the momentum that we have, and we look forward to updating you on our fourth quarter and full-year results early next year.
The conference has now ended. Thank you for attending today's presentation. You may now disconnect.