Deal Dynamics Evolve Amid Global Uncertainty | Weekly Pulse

🔍 Must Know: Private Credit Tightens Spreads Amid Competition

• The Bottom Line: Private credit funds are pushing boundaries to win deals, grinding down margins and cranking up leverage to outcompete banks as geopolitical uncertainty suppresses deal activity.

• Why It Matters: 📉 Credit spreads for top borrowers are at historic lows, with recent private loans pricing as low as 4.5 percentage points over SOFR in the US and 4.75 percentage points over Euribor in Europe.

• The Big Picture: 🏛️ Despite expectations that the Trump administration would revive M&A activity, industry experts note that current valuation gaps and market uncertainties have many sponsors keeping "private debt funds on speed dial" for financing.

💹 By The Numbers: Key Metrics Shaping Private Markets

• €6.25 billion: 📊 Size of the loan deal private credit lenders are nearing with online classifieds company Adevinta, among the largest of its kind.

• $4 billion: 💼 Approximate valuation of Dun & Bradstreet in Clearlake Capital's pending acquisition, with the private equity firm offering about $9 per share.

• $260+ billion: 🇨🇳 Amount raised by dollar-based private equity funds in China between 2020-2022, with many now seeking extensions to deploy capital.

• €200 billion: 💰 CVC Capital Partners' total assets under management at the end of 2024, with €40 billion available to deploy across strategies.

• $10 billion: 💊 Value of Sycamore Partners' takeover of Walgreens Boots Alliance, with Executive Chair Stefano Pessina almost doubling his stake to 30%.

• £2.3 billion: 🏋️ Potential valuation of David Lloyd gym chain as TDR Capital explores transferring its stake to a continuation fund.

• $2.7 billion: 📈 Amount raised by Marathon Asset Management for its global opportunistic credit fund (MDCF II), targeting market dislocations and flexible capital solutions.

• $1.1 billion: 🔄 Pantheon's latest dedicated GP-led secondaries fund, doubling the size of its predecessor and focusing on companies with ongoing growth potential.

• $160 billion: 🏆 Record secondaries volume reached in 2024, with continued growth expected in 2025 due to aging portfolios and demand for liquidity.

🌎 Market Spotlight: Regional Developments

• Brazil's Securitization Play: 🇧🇷 Itau Asset Management, Brazil's largest private credit fund manager with $81.2 billion in AUM, is launching a fund focused on local securitized products known as FIDCs to help investors diversify amid rising interest rates.

• China's Deployment Challenge: 🐉 Venture capital and private equity funds that raised money during China's tech boom are seeking to extend their investment periods as opportunities diminish and exit paths remain unclear.

• France Loses Private Equity Ground: 🇫🇷 According to JPMorgan's Senior Country Officer for France, Kyril Courboin, Emmanuel Macron has "lost the battle" for private equity with "a lot of people moving from London to Milan and Geneva, Dubai" due to political and fiscal uncertainty.

• Rate Pressures Build: 📋 Private equity investors face challenges as central banks maintain high interest rates, with the Federal Reserve keeping US rates in the 4.25-4.5% range and the Bank of England at 4.5%, suggesting a slower pace of cuts than initially hoped.

🤝 Deal Spotlight: Transactions & Strategies

• Clearlake's Data Play: 💾 Clearlake Capital Group is nearing an acquisition of Dun & Bradstreet Holdings in a deal valuing the data and analytics provider at approximately $4 billion, with an announcement expected as soon as next week.

• CVC's Credit Expansion: 🌐 CVC Capital Partners is targeting US private credit for potential acquisitions, with CEO Rob Lucas highlighting "huge opportunities" in private wealth and insurance business as the firm looks to expand its credit operations.

• Walgreens Chair Doubles Down: 💊 Stefano Pessina will increase his stake in Walgreens Boots Alliance to approximately 30% as part of its $10 billion takeover by Sycamore Partners, which plans a three-way split of the business.

• TDR's Continuation Strategy: 🏋️ After multiple failed attempts to sell the David Lloyd gym chain, TDR Capital is exploring transferring its stake to a continuation fund in a deal that could value the business between £1.8 billion and £2.3 billion.

• Sports PE Investment: ⚾ The San Francisco Giants have sold a 10% stake to private equity firm Sixth Street to fund improvements to Oracle Park and their real estate development project, continuing private equity's expansion into professional sports.

• Citi's Wealth Management Lesson: 💸 Citigroup's decade-long experiment to connect wealthy clients with private equity opportunities through the Silverfern Equity Club has ended with disappointed billionaires and legal battles, highlighting the challenges in this segment.

💵 Fundraising Focus: Capital Formation Across Strategies

• Marathon's Opportunistic Credit Play: 🏃‍♂️ Marathon Asset Management has raised $2.7 billion for its global opportunistic credit fund (MDCF II), building on the success of its predecessor which delivered a top-quartile distribution to paid-in capital of 65%.

• Pantheon Doubles Down on GP-Led Secondaries: 🚀 Pantheon has closed its Secondary Opportunities Fund II with $1.1 billion in commitments, almost doubling the size of its predecessor, to capitalize on the growing GP-led secondaries market that offers both liquidity and growth potential.

• Wellington Launches Real Estate Credit Platform: 🏢 Wellington Management has expanded its private investing capabilities with a new Private Real Estate Credit platform, hiring a team of four industry veterans from PIMCO led by Ravi S. Anand to focus on senior and subordinated loans across North American property sectors.

• Apollo's Private Wealth Push: 🌙 Apollo is challenging traditional wealth management paradigms with its private markets offerings, leveraging its scale and expertise to provide institutional-quality alternative investments to high-net-worth investors through innovative access vehicles.

• NAV Loans Transforming Private Equity: 🔧 The private equity industry is increasingly embracing Net Asset Value (NAV) loans as a flexible financing tool, with the market expected to grow to $70 billion and providing GPs with liquidity options without forcing early asset sales.

🧠 Industry Insights: Strategy & Outlook

• Private Credit Premium Persists: 💎 Despite spread compression in the leveraged loan and high-yield markets, private credit continues to offer a meaningful premium according to AllianceBernstein's head of private alternatives, who sees attractive risk-adjusted returns in the asset class.

• BC Partners Thrives in Mid-Market: 🎯 BC Partners' credit arm is finding success in the middle market private credit space despite market uncertainty, focusing on companies with strong fundamentals and maintaining discipline in its underwriting approach.

• Blue Owl's Growth Strategy: 🦉 Blue Owl Capital is reshaping alternative investing with its distinctive approach to private market solutions, featuring a focus on permanent capital vehicles and direct lending to upper middle-market companies, supported by strategic acquisitions.

• Insurers Fuel Credit Boom: 🏦 Insurance companies are increasingly driving the private credit market's expansion as they seek yield in a challenging rate environment, with their long-term investment horizons aligning well with the asset class's structure.

• Dividend Recaps Return: 💸 Private equity firms are increasingly using dividend recapitalizations to return capital to investors amid a challenging exit environment, allowing them to recoup investments while maintaining ownership of portfolio companies.

👀 Trends to Watch

• Tightening Spreads: 📏 Private credit managers are accepting thinner margins to win deals, particularly for larger credits as they continue to replace traditional bank financing.

• Securitization Growth: 📚 Structured credit products are gaining traction globally as investors seek shelter from volatile markets and rising interest rates.

• Private Credit Consolidation: 🤝 The industry is concentrating capital among the largest firms, with recent M&A activity like BlackRock's $12 billion acquisition of HPS Investment Partners in December.

• Wealth Management Focus: 💰 Alternative asset managers are increasingly targeting high-net-worth individuals, though Citi's experience demonstrates the challenges in this segment.

• Secondary Markets: 🔄 Private equity secondaries hit record transaction volumes in 2024, reaching over $150 billion, as both GPs and LPs seek liquidity solutions.

• Continuation Funds: ⏩ Private equity firms are increasingly using continuation vehicles as an exit strategy when traditional sales or IPOs prove challenging, allowing them to extend holding periods while providing some liquidity to existing investors.

• Sports Franchises: 🏆 Private equity firms continue to expand their presence in professional sports ownership, viewing teams and their associated real estate developments as attractive long-term investments with multiple revenue streams.