This could result in Ares working side by side with the likes of Goldman Sachs, Blackstone, Apollo and KKR, but also in more competition for those firms at the top-end of the European private credit market. Bloomberg first reported on Ares’s plans on Wednesday (11 December).

Los Angeles-based Ares launched its European direct lending business in 2007 and has invested more than €66bn across Europe since then. As of September 2024, the firm topped the list of direct lenders in Europe with 86 deals over the previous 12 months, ahead of Goldman Sachs with 52 deals, and Eurazeo with 47 deals, according to 9fin’s Q3 24 European Private Credit Review.

This month, Ares provided a private debt package to support Fremman Capital’s buyout of outpatient rehabilitation provider Rehaneo, with a total debt quantum of around €73m. The firm in November also lined up debt for technical building services firm Andwis Group, which secured a £140m refinancing. Also in Germany, it backed Bregal’s acquisition of workplace software and consulting provider Communardo in November with a circa €65m debt package.

It’s these mid-cap deals in Europe where Ares really stands out. But when it comes to large-cap tickets in Europe, the firm was only fifth place in our 3Q 24 ranking LTM. This could change soon. While participating in clubbed private credit deals will likely remain the exception for Ares going forward, the amount of debt it’s willing to provide in a single transaction is expected to increase, potentially with more deals above the €1bn mark, according to the sources.

New jumbo fund

That’s because Ares is already investing from its sixth European direct lending fund, which eclipses the previous one but has not yet had a final close. As of 30 September 2024, the new fund had original capital commitments of around €14.2bn ($15.9bn, across levered and unlevered sleeves), according to Ares’s 3Q 24 report (page 28).

The firm’s predecessor European direct lending fund, ACE V, had a final close at around €11bn (circa $13.3bn at the time), according to a press release in April 2021.

Larger fund, larger sponsors, larger ticket sizes, that’s the rationale at the firm. And there’s more to come: alongside the new fund, Ares is collecting additional money from investors through separately managed accounts. Some LPs will likely participate in deals via co-investments. And finally, the manager could use some fund-level debt financing to boost its firepower.

That could scale the firm’s European operations closer to those in the US, where Ares is more regularly participating in large-cap deals with a debt quantum of $3bn and more which requires multiple private credit providers to team up.

Ares expected its third senior direct lending fund in the US to total almost $34bn (with equity commitments of around $15.3bn), nearly double the size of its 2021 predecessor fund, according to a press release from July 2024. That would make it one of the largest private credit funds ever raised.

However, in Europe, there’s an important caveat. While some other direct lending firms participate in cov-lite transactions, which virtually lack any covenants in its documentation, Ares will in Europe only participate in deals that feature a covenant, according to one of the sources. While the headroom of any covenant, or other deals terms, may be discussed, the insistence on the covenant itself seems to be set in stone at Ares. And that, of course, could limit its negotiating power in any large-cap deal where direct lenders may also compete with the BSL market, and where debt is often cov-lite.

Gap to fill

But in its preferred space in Europe so far, the notoriously crowded mid-market, Ares might get a bit more room to manoeuvre. Direct lending firm Alcentra, once a leader in private debt this side of the Atlantic, is struggling to raise new money as its assets under management have shrunk since 2020, reported Bloomberg.

HIG Whitehorse, another major player in the European mid-cap space, also faced a slow fundraising round and found it hard to gain visibility in direct lending dealmaking recently, reported 9fin in October 2024.

There’s also Fidelity, which exited European direct lending in May, laying off 30 staff and selling its only two assets. In June, Polen Capital followed, deciding to shut its European direct lending strategy, less than 18 months after partnering with Pemberton to enter the market.

But Ares would not be the only private credit outlet looking to capitalise on other managers’ travails and exits. Asset manager BlackRock just struck a deal to acquire another private debt heavyweight, HPS Investment Partners, which, by BlackRock’s reckoning, will make the combined firm a top five manager by private credit AUM. This could add to the current dynamic in the European market of large private credit firms squeezing outsmaller or less successful participants.

Meanwhile, Park Square Capital closed its new European direct lending programme at €3.4bn in September, including a second joint venture with bank SMBC, and will increasingly look at debt opportunities outside the LBO space, such as PIK or preferred equity for sponsor-backed companies, according to a 9fin interview from this week with Robin Doumar, founder and managing partner at Park Square.

Ares declined to comment on this article.

Private credit pipeline

The Christmas break in Europe is approaching fast and everyone is busy getting presents — and their deals over the line.

That was definitely the case for Arcmont, which won the race to provide the financing for Rivean Capital’s buyout of Dutch outsourcing services firm Acture Group, potentially bringing in Crescent Capital as joint lender for the €165m of total committed debt.

Sixth Street, on the other hand, is lining up a private debt package to support specialty pharmaceuticals firm Essential Pharma’s rollover into a single asset continuation vehicle, committing around €300m.

HIG Capital is in talks with direct lenders to support its bid for Kantar Media, a division of market research firm Kantar Group, in a deal that could be worth more than £1bn.

And on the M&A side of things, private equity firm Nordic Capital is considering a sale of its German healthcare services business Vivecti Group and has mandated Rothschild to advise on the process.

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