Last month saw two significant deals struck amid an uptick in M&A activity – first, Orix USA acquired a majority stake in Hilco Global. Then, days later, BlackRock announced it was acquiring ElmTree Funds.
For those in the private credit industry, this has been seen as a natural progression, with asset managers increasingly keen to access segments of the market in a cost-effective way.
“Similar to other industries that have experienced boom cycles, we can expect to see significant consolidation among asset managers to achieve scale and market penetration rapidly,” said Morris DeFeo, chair of the corporate department at New York law firm Herrick. “We also will likely see an increase in consortiums, joint ventures and other strategic alliances, as well as the emergence of new technologies — all of which are common characteristics of a rapidly-growing and evolving industry.”
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DeFoe sees M&A as a natural result from the mismatch between the number of private credit firms and the sheer amount of investors seeking exposure, which he expects will lead to “significant competition” for deal flow and funding.
This ability to originate a healthy flow of deals was one of the main reasons Orix USA bought a stake in Hilco. The former’s group head of private debt and real estate Jeff Abrams highlights the latter’s unique access to private credit origination as a liquidator and asset appraisal service provider.
“We think the market opportunity for this type of asset-based lending is largely untapped, and Hilco underwrites loans using knowledge of asset values compiled over decades of liquidation and appraisal experience,” added Abrams.
Asset managers are eager to sign off on such deals as this is much less expensive than organically creating their own private debt brands from scratch, which can also be time-consuming.
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“One acquisition can deliver years of growth instantly, providing immediate access to track record, origination networks and investor relationships,” said Benjamin Lamping, founder and chief executive at Reframe Capital. “Recent moves by BlackRock, Nuveen, PGIM, Clearlake and Generali each highlight how M&A can enable rapid market entry and sector expansion, especially in competitive areas like infra debt or sponsor lending.”
This trend of M&A is attracting further attention for established private credit firms, with both scale and origination functions. Many expect this trend to continue and Reframe’s Lamping can see this leading to the biggest names continuing to grow in size.
“This is reshaping the industry into a barbell structure, where large platforms thrive and smaller players struggle to scale or access major mandates,” he said. “As LP capital increasingly flows to multi-strategy firms, smaller GPs risk being sidelined, despite well-documented evidence that they can often more efficiently access segments, such as the lower mid-market, more efficiently and, deliver outsized risk-adjusted returns.”
DeFoe sees M&A as inevitable for any growth strategy in the space, but warned of prioritising speed instead of organic growth: “There is no ‘best way’ – however, an ill-conceived or poorly executed M&A strategy can be disastrous.”
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