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Sami Vukelj

The Unicrunch is our US private credit newsletter, in which we break down everything from unitranches to ABL lending. Find out more about 9fin for private credit here.

It’s fair to say tech has had a bit of a bumpy ride over the last couple of years. Elevated interest rates skimmed off the frothy valuations in the sector and there has been a sobering reality check for many investors.

Tech M&A activity has remained somewhat muted compared with the years leading up to when the Fed started hiking rates, but a recent report from Union Square Advisors is finding a rosier picture this year with plenty of green shoots to get investors excited.

Union Square says that through 30 September, tech M&A volume totaled $238bn, a 24% increase over the same period in 2023. And that's not just limited to the BSL market, as overall private placements for tech M&A deals through Q3 2024 totaled $137bn, rising 142% from the same period in 2023.

In the past month alone we’ve seen a flurry of tech financings, particularly at the upper end of the middle market, including software company Alegeus turning to PC for a $525m refi and recap, JP Morgan leading the $2bn refinancing for HR software firm Vensure, and the $3.2bn financing provided to support Blackstone and Vista’s acquisition of software provider SmartSheet, to name a few.

And activity is only expected to increase until the end of the year. Union Square head of M&A Wayne Kawarabayashi writes that this will be fueled by an expected rebound in valuations, the pressure on PE companies to return capital to LPs, and the pressure for them to deploy more recently-raised capital into new bolt-on and platform investments.

“While some high-quality assets have traded this year with high multiples of ARR or EBITDA, many companies have held back from seeking an exit in a compressed valuation environment,” wrote Kawarabayashi. “We expect to see more strong assets come to market as valuations rebound and fund or shareholder dynamics create pressure for an exit.”

For others, however, the pictured is a little different. Middle market lending sources we spoke to noted that these high-level metrics don’t entirely jibe with their experience in the smaller market segments, where the gears are turning a bit slower.

One lender speculated that the massive increase in the headline figures may be skewed by the larger tech deals getting done in the upper market, which is where most of our recent examples above fall.

Increasingly, private credit is a tale of two markets. The largest firms are capturing the vast majority of fundraising as smaller players get boxed out of the competitive space. It makes sense that this dynamic would translate to dealmaking, with the biggest fish driving the bulk of lending activity in the tech sector and writing the largest checks, potentially making the rebound suggested by these figures less widespread than they first seem.

Going forward, the AI question looms large over the future of the sector, but that may only exacerbate the bifurcation in the private credit market. Kawarabayashi said in the report that he expects financing opportunities to be dominated by AI-focused companies. But the opportunities here too may be a boon for the larger lenders considering the sums that are being thrown around — last month BlackRock and Microsoft announced a $30bn fund targeting AI infrastructure, for instance.

While there may be smaller auxiliary opportunities for lower and middle-market lenders, it seems fair to say that the buy-in at the AI infrastructure table will be a bigger benefit to larger firms.

And speaking about tech, perhaps you may be interested in hearing about how private credit firms can utilize technology to make better decisions on assessing risk and underwriting loans. 9fin’s Peter Benson will be hosting a panel on this very topic at Private Credit Connect: East on 21 October in Miami.

At the same event, Shubham Saharan will be moderating a discussion on the hottest issues in the lower middle market. To see these discussions and hear much more on topics as broad as asset-based finance, regulation, and NAV finance, sign up here.

If you run into anyone on the 9fin team in Miami then do not hesitate to say hi!

Ohio pension fund looks to invest $2bn annually in private credit

Montana pension scheme plans increased allocation to private credit

Alegeus pulls $525m BSL refi, recap and pivots to private credit

Wisconsin LP raises private debt target again

Wells Fargo inks $250m loan to back Canal Road’s direct lending efforts

Amerit Fleet Solutions — the Brightstar-backed maintenance provider for delivery vehicles is exploring a potential sale with the help of advisors Moelis & Company

GoHealth — the public company is seeking a refinancing of around $500m in privately placed debt

Anaqua — the Astorg-backed IP software firm is up for sale with the help of Jefferies and Arma Partners

MRI Software — in the market for a repricing of its existing $2.5bn debt and is seeking a $250m incremental loan for additional M&A

Corporate debts mount as credit funds let borrowers defer payments (FT)

Fed’s Kashkari Says Private Credit May Lessen Systemic Risk to Financial System (BBG)

SEC's Peirce says private credit isn't so scary (P&I)

Insurers to Continue Upping Allocations to Private Credit (Institutional Investor)

BlackRock in Talks With Ambani for India Private Credit Venture (BBG)

Looking for more private credit content? Then make sure you check out our article on Blackstone and the new ecosystem of asset-based credit.

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