The Impact of Private Credit in Private Equity & M&A Transactions

The rise of private credit has transformed private equity (PE) and M&A transactions, providing businesses and investors with alternative financing solutions beyond traditional bank loans. As interest rates fluctuate and credit markets evolve, private credit is playing an increasingly significant role in deal structuring, leveraged buyouts (LBOs), and acquisition financing.

For business owners and investors in Arizona and beyond, understanding how private credit impacts M&A transactions can help in structuring deals, maximizing leverage, and optimizing capital allocation.

1. What is Private Credit in M&A?

Private credit refers to non-bank lending, where capital is provided by private debt funds, institutional investors, or alternative asset managers. Unlike traditional bank financing, private credit offers:

• Flexible deal structures tailored to M&A needs

• Higher leverage availability for private equity-backed deals

• Faster approvals compared to traditional lenders

Private credit is frequently used in leveraged buyouts (LBOs), recapitalizations, and growth acquisitions, allowing sponsors to finance deals without relying on banks. The asset class currently represents $1.7T in total volume.

2. The Role of Private Credit in Private Equity Transactions

Private equity firms often rely on debt financing to acquire businesses, aiming to maximize returns through leverage. Private credit plays a critical role in:

A. Leveraged Buyouts (LBOs) & Acquisition Financing

• Private equity firms use private credit to fund a significant portion of acquisition costs.

• Direct lenders provide higher leverage ratios than traditional banks, enabling larger deal sizes.

• Debt terms are more flexible, with customized repayment structures based on cash flow projections.

B. Debt Stacking & Capital Structure Optimization

• Private credit funds offer unitranche financing, which combines senior and subordinated debt into a single loan facility for streamlined execution.

• Mezzanine financing and second-lien loans allow firms to optimize capital structure while preserving equity ownership.

C. Refinancing & Growth Capital

• Private credit is used to refinance existing debt, freeing up capital for growth, acquisitions, or operational expansion.

• PE-backed companies access non-dilutive financing, reducing reliance on equity fundraising.

3. Why Private Credit is Reshaping M&A Transactions

Private credit has grown in popularity because it provides advantages over traditional lending in M&A transactions:

A. Speed & Certainty of Execution

• Private credit lenders move faster than banks, reducing transaction timelines.

• Deal certainty is higher since private credit funds have fewer regulatory restrictions than banks.

B. Higher Leverage & Custom Structures

• Private credit providers offer higher debt multiples (e.g., 5x–7x EBITDA), compared to banks’ stricter lending limits.

• Loan terms are customized based on business cash flow, making it easier to finance acquisitions.

C. Alternative to Syndicated Loans

• In times of banking instability or rising interest rates, private credit remains a reliable financing source.

• Companies can avoid public debt markets and work with direct lenders who offer tailored solutions.

4. Risks & Considerations of Private Credit in M&A

While private credit offers advantages, it also comes with risks that business owners and private equity firms should evaluate:

• Higher Interest Costs – Private credit typically has higher rates than bank loans.

• Stricter Covenants – Debt agreements may include financial performance requirements.

• Limited Flexibility in Distressed Scenarios – Unlike banks, private lenders may enforce stricter repayment terms.

5. The Future of Private Credit in M&A Transactions

As traditional bank lending tightens, private credit is expected to play a larger role in M&A transactions. Trends include:

• Increased use in middle-market M&A, where companies need flexible financing.

• Expansion into non-traditional industries, such as technology and healthcare.

• Greater competition among private lenders, leading to better terms for borrowers.

Final Thoughts

Private credit has become a key financing tool for private equity and M&A transactions, offering flexibility, speed, and higher leverage options. Whether funding acquisitions, leveraged buyouts, or recapitalizations, private credit enables businesses to execute deals efficiently.

For business owners considering an M&A transaction in Arizona, Phoenix, Scottsdale, or beyond, working with an investment banking firm like William & Wall ensures consideration of these strategies, and capital structure guidance, in your pursuit of M&A.

Contact William & Wall today to explore M&A strategies tailored to your business.