(Bloomberg) — Dealmaking is poised to accelerate this year as private equity and private credit funds face renewed pressure to return money to their investors, participants at the SuperReturn International conference in Berlin said.
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Activity is “going to pick up over the course of this year and into the next simply because limited partners in private equity want to see their capital back,” David Miller, Morgan Stanley Investment Management’s global head of private credit & equity said in an interview with Bloomberg TV on the sidelines of the conference.
While there is still a gap in valuation expectations between buyers and sellers, the “gap has narrowed and there is clearly a pickup in activity,” said David Hirschmann, co-head of credit at Permira, in a separate interview.
Hirschmann added that there’s been a backlog of delayed transactions that were supposed to happen in the last 12 to 18 months, but that they are now in the pipeline.
The opportunity set for private credit funds has increased in recent years, the Permira executive said, and while the industry continues to dominate mid-sized transactions, it now has the capacity to compete for larger deals.
Borrowers have more options this year thanks to the return of the broadly syndicated debt markets, Morgan Stanley’s Miller said, but investment banks skew toward larger deals and that trend benefits private credit providers. Stricter bank regulations have also fueled the growth of private credit as traditional lenders have stepped back from making smaller loans.
“The core middle markets are still a natural place for private credit,” Miller said.
Private equity firms are evaluating current market prices and options, particularly for companies that aren’t growing as strongly, said Matt Cwiertnia, head of private equity at Ares Management.
“People want money in the private equity business,” Cwiertnia said. “Investors want money back, and I do think the drumbeat is getting louder for that. With that, I do think GPs like ourselves will be looking to sell assets and deal flow will pick up in the back half of 2024 and into 2025.”
Higher Rates
On the question of defaults, Hirschmann added that the rise in interest rates has been factored into private credit deals, and only those companies whose debt packages were arranged beforehand with high leverage levels of 6 to 8 times earnings, have been struggling to service debt levels.
London-based investor Permira manages about €80 billion in assets across its buyout, growth equity and credit funds, according to its website. Ares oversees more than $308 billion in its credit group and $24.5 billion in private equity.
Morgan Stanley IM manages around $48 billion across private credit and equity, split half-and-half, according to representatives for the firm. Morgan Stanley’s direct lending arm was one of the lenders that recently provided about $1 billion of debt to support Vista Equity Partners’ acquisition of Model N.
–With assistance from Charlotte Hughes-Morgan.
(Updates with additional comments throughout.)
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