Private credit is increasingly playing a pivotal role in mergers and acquisitions (M&A) in 2024.
As traditional financing routes, like bank loans, become more cumbersome due to regulatory pressures and economic factors, private credit offers a more agile and tailored solution for buyers and sellers. Private credit firms provide quicker, flexible funding options that bridge financing gaps, enabling faster deal execution and enhancing the ability to close complex transactions. This growing trend is helping shape the future of global finance by making M&A activity more dynamic and accessible.
Tips for Navigating Private Credit in M&A:
- Understand the Flexibility:
Private credit firms can structure deals to suit the specific needs of the transaction, which banks typically cannot. This flexibility enables buyers to pursue acquisitions even when traditional financing options are not ideal. For example, a buyer may need financing for a distressed asset where traditional lenders might be hesitant due to perceived risks. In such cases, private credit becomes a powerful tool for closing deals that might otherwise fall through. - Leverage Speed to Your Advantage:
One of the primary advantages of private credit in M&A is the speed of execution. While traditional bank loans can take weeks or even months to arrange, private credit deals can often be finalized much quicker. This speed is crucial when a buyer is looking to capitalize on a time-sensitive opportunity. A recent example of this is the acquisition of Grubhub by Just Eat Takeaway, where private credit played a key role in speeding up financing arrangements, allowing the deal to close smoothly. - Consider the Increasing Demand for Flexible Financing:
As deal structures become more complex, private credit is becoming the go-to solution for providing creative financing arrangements. This is particularly evident in sectors like tech, where the need for innovation and fast-moving capital can’t wait for the slower pace of traditional banking. For example, in the 2024 acquisition of a tech startup by a global corporation, private credit enabled the buyer to secure funding for a cash-flow-based deal, something that would have been more difficult with conventional financing methods. - Evaluate the Risks:
While private credit offers flexibility, it is also associated with higher risk for lenders, as these deals often come with less security compared to traditional loans. For buyers, it’s important to weigh these risks carefully, ensuring that the benefits of faster access to capital outweigh the potential downsides. A thorough due diligence process is essential to ensure the sustainability of the financing arrangement. - Use Private Credit for Complex Transactions:
One of the key reasons private credit is becoming a central player in M&A is its ability to handle complex transactions, such as cross-border deals or acquisitions of distressed assets. In 2024, we’re seeing more M&A deals in the healthcare and energy sectors being funded through private credit, as these industries require specialized financing structures to manage risks effectively.
Recent Examples:
- Uber’s Acquisition of Transplace (2024): This deal was largely funded through private credit as Uber looked to acquire Transplace without the delays typically associated with traditional financing methods. The private credit allowed Uber to execute the deal quickly while maintaining its financial flexibility.
- Just Eat Takeaway’s Acquisition of Grubhub (2024): In this deal, private credit provided a critical component of financing for the transaction, allowing the buyer to quickly finalize the deal amidst a competitive bidding process.
Conclusion:
The growing role of private credit in M&A activity in 2024 is transforming the landscape of global finance. Its ability to provide flexible, quick, and tailored financing solutions is filling a critical gap that traditional lenders cannot address. As businesses and investors continue to explore new avenues for growth, private credit will remain a driving force behind M&A transactions, enabling deals to close faster and with more flexibility than ever before.