Five years ago, a mid-market buyout was almost always financed by a syndicate of banks. Today, a growing share of those deals close with a single private credit fund on the other side of the table, and that changes more than the cost of capital.
01Why the shift is happening
Tighter bank capital rules and a long period of strong fundraising have pushed direct lenders into deals that used to belong to banks. They can offer speed, certainty of execution and flexible structures that a syndicate struggles to match.
For sponsors and founders, the appeal is simple: fewer counterparties, faster answers and terms negotiated with one decision-maker rather than many.
“The question is no longer whether private credit will be in the room. It is whether the board understands the terms it is agreeing to.”MARCUS BELL, PARTNER
02What changes for owners
Direct lenders tend to hold loans to maturity, which means the relationship lasts for the life of the deal. That can be an advantage in a downturn, but it also means covenants and reporting obligations need to be negotiated with care from day one.
- Pricing is typically higher than bank debt, offset by speed and flexibility
- Covenant packages vary widely between lenders and deserve close review
- Reporting expectations are more frequent and more detailed
- Refinancing options can narrow if performance slips
03The numbers behind it
Across the engagements we advised on in the past two years, the pattern is consistent.
04How boards should respond
Treat the financing as a strategic decision, not a box to tick at the end of a process. Run a competitive lender process early, model downside scenarios against the proposed covenants, and agree in advance who on the board owns the lender relationship.
Done well, private credit can give a company room to execute its plan. Done in a hurry, it can quietly constrain the next five years.
Partner in our transactions practice. Marcus has advised on more than 80 buy- and sell-side deals across North America and Europe.
