2025 Outlook: Direct Lending Roundtable
Our investment professionals explore the trends, risks, and opportunities likely to shape global direct lending markets in the year ahead.
Julianne Rusie: With the uncertainty of the U.S. election behind us, and private equity sponsors sitting on $2 trillion of dry powder, have we reached a point where M&A could meaningfully unlock?
Tyler Gately: Clarity certainly is improving as some of the key drivers of uncertainty subside and sponsors become less concerned about leaving money on the table. We’re now starting to see green shoots, especially in terms of some of the leading indicators of deal volume. Buy-side diligence firms and accounting firms are doing quality-of-earnings reports, for instance, and investment banks appear to be sold out for the next three or six months. These factors point to a turnaround in M&A being a question of when, not if. While that’s always true to an extent, we’re getting to a point where bid-ask spreads, in terms of valuations, are beginning to compress as some of the causes for uncertainty subside.
Stuart Mathieson: I agree with Tyler that conditions seem to be ripe for higher M&A, and anecdotally we are seeing signs of a pick-up in new platform activity. But perhaps a more relevant question is how reliant certain platforms are on M&A for origination and growth—and the answer is, it varies by manager. Looking at our global portfolio of 350+ companies over the last year, there is a notable mix of new platform deals and “off-market origination,” or add-on transactions in which we have provided additional financing to sponsors or companies we’ve lent to previously. That is to say, while a stronger M&A environment would certainly be positive, incumbency matters and will continue to drive significant origination and opportunity as sponsors grow their investments.
