Private debt's share of buyout financing hits decade high

Private debt accounted for 77% of global leveraged buyout financing in 2024, its highest annual share since at least 2015, according to Preqin data.

Banks funded the remaining 23%, their lowest share over the same period.

Private debt's dominance has continued into 2025, financing 83% of the 53 leveraged buyouts announced up until Jan. 22.

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Funding gap

Private debt providers are filling the gap left by banks that have retreated from funding LBO transactions.

"[Due to] increased regulatory pressure, banks are unable to use the full weight of their balance sheets to support leveraged finance," Nick Holman, partner and head of UK and Ireland at private debt manager Kartesia, told S&P Global Market Intelligence.

Nicolas Nedelec, a partner at asset manager Eurazeo SE, said loan size is another factor. The capital charge and profitability of loans for some deals, particularly in the middle market, make them unattractive to banks. "It's very expensive to maintain large teams being active in this segment, and you don't have a lot of profitability for it."

Oliver Baker, member of management, private credit at Partners Group, said bank syndicates last year recovered some market share from private credit in servicing megadeals. "[T]he investment banks that underwrite syndicated loans are sensitive to broader market conditions and their perceived ability to offload the risk," Baker wrote in emailed comments.

Growing sponsor adoption

Private debt's momentum is also driven by the advantages of speed and certainty in loan execution, Nedelec said. A direct lender is more nimble than a syndicate of banks.

Banks could be a more cost-attractive solution for borrowers, but paying a premium to tap a private credit fund may be worthwhile due to the efficiency of execution.

"Maybe it's twice as expensive working with a [private credit] fund. But if you can go twice faster, then it's worth it," Nedelec said.

"This was the case during the last few years when banks became more risk-off in the context of greater geopolitical tensions, rampant inflation, and higher base rates," Baker said. "Borrowers appreciate the flexibility that private credit solutions can offer, especially in more complex operating environments."

Activity and investor outlook

Private debt activity should increase in 2025, in line with an anticipated uptick in private equity deals, and despite the uncertainty of the interest rate path.

Additionally, institutional investors are finding investment in private credit funds appealing when weighing the return against other instruments, Holman said. In Europe, facing lower economic growth than the US, investors are generally moving out of equities toward private credit or debt instruments, which offer a contracted yield but not necessarily upside.

"[Private credit is] seen as a safe place to put money that generates a decent yield, which ultimately is what a lot of pension funds and insurance companies are looking for. That yield is enough to match their liabilities to pension holders," Holman said.