Private Credit Loans Grow to Record Size From Add-On Deals

Private credit managers are quietly providing record loans to existing borrowers seeking small acquisitions, stealthily building the value of their lending portfolios while adding more concentrated risks.

(Bloomberg) — Private credit managers are quietly providing record loans to existing borrowers seeking small acquisitions, stealthily building the value of their lending portfolios while adding more concentrated risks.

So-called add-on transactions are on the rise in the $1.5 trillion private credit market partly because a dramatic decline in large-scale leveraged buyouts has left lenders with excess cash and encouraged private equity firms to pursue smaller deals that can be tucked into existing portfolio companies. 

Just in the past four months, Integrity Marketing Group borrowed $500 million for tuck-in deals, while Risk Strategies Co. increased its borrowing capacity for the same purpose. 

Lenders are comfortable providing additional capital for an existing borrower’s acquisition of a competitor or supplier, calculating that the combined business will be more valuable. And add-on deals tend to be for smaller companies, meaning a lower cost on a relative basis to private equity firms and their borrowers than the larger acquisitions of the past. 

“The reason why the add-on activity continues to be so robust is because it’s harder for buyers and sellers to agree on price on new LBOs,” Doug Cannaliato, senior managing director at Antares Capital, said in an interview. “But when you’re doing a smaller add-on for an existing portfolio company, typically the smaller companies trade for lower multiples than the initial platform. So said a different way, the buyer is willing to pay a multiple that the seller can agree to.”

Adding On

Harvest Partners’ Integrity Marketing recently turned to a consortium of lenders led by Blue Owl Capital Inc. for the $500 million in debt earmarked for mergers and acquisitions. The new borrowing, tacked on to debt accumulated since 2019, creates the largest overall corporate loan commitment in private credit at $6.2 billion.

A group of lenders led by Golub Capital raised Risk Strategies’ borrowing facility by $700 million to $4.45 billion to support M&A opportunities. The debt commitment has grown from $1.6 billion in 2019. 

“Borrowers are looking to upsize their existing credit facilities to do tuck-in acquisitions,” said Kort Schnabel, co-head of US direct lending at Ares Management Corp. “Things have been slower on the new platform or the sponsor-to-sponsor trades, so we’ve seen a lot of private equity firms doing small add-on acquisitions to their existing portfolio companies.”

Schnabel said on Ares Capital Corp.’s second-quarter earnings call that loans to existing borrowers have grown to a record of more than 70% of direct lending activity — up from the usual level of about 50%. 

At Barings, 70% of investment flow in the last 12 months has come from existing portfolio companies, according to Salman Mukhtar, a managing director there.

“Our portfolio has generated most of our deal flow, it’s helped us a lot,” Mukhtar said. “Close rate on new deals has been maybe 5% of all opportunities reviewed in the last 12 months.”

For Antares, more than 70% of loan volume came from its existing portfolio in the last three months, according to Cannaliato, who is co-head of originations.

Consolidation Risk

The expanding loans from private credit firms to companies they already lend money to raises the odds that a problem at one borrower may have a bigger than usual effect. Some market observers see risks in small companies levering up again and again by tapping the same group of lenders for acquisitions as the US economy slows.

Wells Fargo & Co. analysts Finian O’Shea and Jordan Wathen see some cause for concern. “There is concentration risk to doing a lot of roll ups, especially when the highest quality borrowers are going to the syndicated markets,” Wathen said in an interview. “Add-ons rarely have third party validation which creates a selection bias for companies already in a manager’s portfolio.”

So-called concentration risk can make a lender particularly exposed if there are any issues integrating a new acquisition.

Even so, private credit firms are likely to focus on lending to their existing borrowers. Sponsor-backed companies find add-on acquisitions attractive in anticipation that private credit lenders will help finance the cost with additional debt.

“Every year, the majority of our volume, including years when there’s noise in the market, is add-on activity,” Antares’ Cannaliato said. “The reason add-ons march ahead is because it allows sponsors to average down their purchased price multiples, so they’re still willing to pay full multiples for small companies.”


  • Indian conglomerate Hinduja Group is in talks with private credit funds to raise about $800 million to back the acquisition of Reliance Capital
  • Thoma Bravo-backed Qlik Technologies Inc. is seeking to sell a $2.4 billion loan in the broadly syndicated market to refinance debt in combination with a company it acquired in May
  • Blackstone Inc. committed $1.5 billion to help finance the merger of HealthComp Holding Co. and Virgin Pulse
  • RSK Group Ltd, a UK-based environmental, engineering and technical services firm, is looking for a new investor to provide preferred equity to fund its growth
  • Private credit funds competing with banks to finance Carlyle’s potential buyout of some units of Medtronic Plc have offered a partial payment-in-kind feature in an effort to win the deal
  • Oyo Hotels is in talks with Apollo Global Management Inc. to refinance a $660 million loan as the once-high-flying startup seeks more time to cut debt following a delay in its initial public offering
  • Barclays Plc is no longer pursuing a debt deal for former Yellow Pages publisher Hibu Inc. that would have refinanced a private loan
  • A group of private credit lenders led by Oak Hill Advisors has provided a $505 million loan for Lindsay Goldberg & Bessemer’s acquisition of engineering firm The Kleinfelder Group Inc.
  • Thoma Bravo is nearing a roughly $1 billion financing package from a group of private credit lenders for its planned acquisition of NextGen Healthcare Inc.
  • Private credit funds are working to provide about a fifth of an up to £1.25 billion financing to back the potential buyout of the UK’s Iris Software in payment-in-kind debt
  • Private credit funds have been sounded out for participation in a A$450 million four-year debt package for Star Entertainment Group Ltd


  • KKR & Co. and Carlyle Group Inc. won’t take the portion of profit known as “carry” on returns from two new European direct-lending vehicles
  • Carlyle is seeking to raise billions of euros with the launch of a new direct lending strategy in Europe
  • Orion Capital Asia has raised $205 million in the first close of its third fund and aims to focus its lending in India and Southeast Asia
  • BlackRock Inc. is tapping the private credit market for a new fund that will offer one of the fastest growing ESG investment strategies in the US
  • HPS Investment Partners is ramping up the volume of net-asset value loans it provides and is aiming to take its overall tally as high as $2 billion by the end of the year

Job Moves

  • The California Public Employees’ Retirement System is looking hire a new chief investment officer by early next year following the surprise resignation of its previous leader less than 18 months on the job
  • Muzinich & Co has launched MLoan, a semi-liquid European private debt strategy targeting high-single-digit net returns
  • Goldman Sachs Group Inc. has hired James Keller from HSBC Holdings Plc in its latest push into private debt for blue-chip companies

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