Private credit funds have amassed massive firepower over the last few years. These funds are putting that cash to work to finance bigger takeovers, according to people involved in recent deals. Cash sitting in such funds has grown to a whopping $364bn globally, according to data from Preqin, and more than $80bn has been raised so far this year, as low interest rates send investors hunting for higher yields in private markets.
Traditional bank financing remains the go-to for most takeovers. But the loans and bonds that the banks are underwriting are mostly sold on to a wide group of lenders, and so are priced based on the whims of the market. A sudden jolt of volatility or shift in investor sentiment can alter the financing terms of a deal. Private credit funds proffer that companies are turning away from bank financing for increased confidentiality and greater certainty of receiving the funds, along with a faster turnround time between agreeing the deal and securing the cash.
Private equity group Thoma Bravo’s $6.6bn acquisition of Stamps.com last week came with a surprising twist in the deal documents: the absence of a traditional bank financing the leveraged buyout. Large debt-financed takeovers by the private equity world have historically been underwritten by household names on Wall Street, institutions such as JPMorgan Chase, Goldman Sachs and Bank of America. Thoma Bravo’s private equity funds will stump up $4bn for ownership of Stamps.com, a mailing and shipping business with $758m in revenue last year. To get its deal over the line, the group turned to four private lenders to provide the $2.6bn in debt financing. Ares, Blackstone and PSP Investments will provide the majority, with Thoma Bravo’s own lending arm making up the difference, according to people familiar with the matter.