A Market in Full (Fourth of a Series)

Having moderated three private credit panels in the past ten days, a recurring theme is the record level of deal volume. What’s driving this unprecedented activity?

In its recently published 3Q survey [link], William Blair reported $155.3 billion of institutional loans, nearly the highest number they’ve recorded. Almost 60% – $92.4 billion – was dedicated to M&A transactions.

Some sellers have been motivated by potential tax increases next year. That prospect is also expected to produce more dividend recaps. Covid tailwinds are boosting companies to historic highs on revenues and Ebitda, encouraging owners to cash out at relative valuation peaks.

Sponsors also suggest increased focus by founders and management teams on equity rollovers. How much money makes sense to take off the table? How much to keep in the business? The former may be guided by tax considerations; the latter depends on the seller’s desire to diversify investments. What business has more visibility than one they created?