Taking the Credit — Lumpy, bumpy and chunky

Josie Shillito

26 October 2023•4 min read

This article is part of our new service, 9fin Private Credit. If you're interested in a free trial, contact subscriptions@9fin.com

“Depth of market is absolutely a concern,” a source recently told 9fin, “pretty much anywhere in the world, besides private credit at the moment.”

And we’d be inclined to say that he’s read the room right. The capital’s there, the pressures to deliver a return are there, the risk appetite can best be described as starving hungry.

And in Europe, the proposed debt packages backing the take private of online advertiser Adevinta (talked at €4.5bn) and the sale of UK business software provider IRIS Software (as much as £1.5bn) are testing the depth of that market.

During a recent chat with Blackstone Credit, journalists asked “is there depth enough in European private credit to swallow a €4.5bn deal?” and the answer was a resounding yes.

These sizes, though, do require a little more collaboration between funds. While in the not-so-distant past, one fund might speak for a quarter or a third of a deal, and from this position dictate the terms, with an Adevinta-sized transaction, three or four funds need to band together to achieve the same thing.

This, according to Blackstone, works: “We have the demands of a few parties, who might be preoccupied by different things: terms, pricing, other caveats, so together we actually drive a better deal.”

What happens to private credit funds who don’t want to work in this spirit of collaboration. Do they have a place in these monster deals? A smaller seat at the table, perhaps.

Another private credit fund disagreed entirely with this approach. “It’s not in our strategy to have smallish tickets in a giant deal, and that’s what it’s going to be with a €4.5bn piece. We still prefer to target the deals of €1bn in size and be the single largest lender.”

Fortunately there are a few of these €1bn deals around, with IRIS Software the most prominent example right now.

Nonetheless, 9fin sources describe the market as ‘lumpy and bumpy’ with these large deals spinning out the negotiation process (although we understand IRIS’s first bid deadline is next week), and the truly chunky deals pushed to next year, when valuations might still be more attractive.

IK Investment’s sale of French employee savings distribution and management specialist, Eres, is expected early next year.

Some have gone all together silent. The planned sale of Open GI by Montagu Private Equity, marketed off an EBITDA of £30m with Arma Partners, has fallen quiet, as has the carve out of consumer insights company WGSN from its parent company.

Depth in direct lending

At the smaller end of the private credit spectrum, the depth of the direct lending market is just as generous. However, so it appears is that of the banks, certainly on the continent. On deals where the company is smaller, or younger, or just not enough of a stable cash story, leverage comes down and the banks are all too willing to get competitive.

Take European Digital Group, for example. Although strong growth, it is young (founded in 2019), and sources would prefer leverage of around 4x — perfect territory for banks to compete, as reported by 9fin.

Also a bank target is Paragon Partners' upcoming sale of Wemas, a road barrier producer with a €12.3m EBITDA, as 9fin reported, and sponsor Bencis’ sale of Tech Tribes, a Benelux-based collective of digital consultancy brands, with leverage talked at between 3.75x and 4.25x off of €12.5m EBITDA.

Fortunately, there are enough opportunities for everyone to have a shot at extending the credit. Also, as illustrated this week by Pictet’s first close of its European direct lending fund at €200m, focusing on the lower mid market, and Schroders’ reported entry into private credit at a substantially larger €30bn.

News this week that corporate credit and CLO portfolio manager Dan Robinson is turning his hand to private credit at DWS Group after a spell at Man Group is also perhaps another sign of the immense private credit appetite not just to deploy capital, but to bring in managers from the syndicated space.

Deal pipeline

For the full named and detailed list of details subscribe to 9fin private credit by emailing subscriptions@9fin.com. In the meantime, here’s a taster…

The sale of a German wealth manager at upwards of €100m EBITDA, German road safety equipment manufacturer and a dental business — a bunch of deals in the UK including a synthetic limbs manufacturer, €100m of debt towards a UK cloud services provider, Benelux keen not to be left behind with sponsor Bencis particularly busy, and a very large (€100m EBITDA plus) business up for sale in Sweden - but will the existing lenders let anyone new in?