Sponsors and borrowers “cautiously optimistic” this year
Private equity sponsors and borrowers are cautiously optimistic about their portfolios and expect M&A activity to pick up in the second half of the year, according to a new Antares survey.
The $68bn (£52.4bn) alternative asset manager’s inaugural credit market outlook survey found that the majority of respondents expect healthy organic revenue growth this year and less stress across their portfolios.
The survey, which polled private equity sponsors and Antares borrowers from a wide range of industries, found that the majority of borrowers expect a ‘soft landing’ for the US economy, with 78 per cent expecting slow growth (0-2 per cent) over the next 12 months and only 10 per cent expecting a recession.
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In line with their outlook on the economy, more than two thirds (68 per cent) of borrowers expect “modest” or “strong” revenue growth this year, while 74 per cent expect healthy, organic earnings growth.
Meanwhile, the majority (58 per cent) of private equity sponsors are seeing the pressures facing their portfolio companies as stable compared to 2023, with 21 per cent seeing decreasing pressure.
And most sponsors expect to acquire a business during the second half of 2024, with almost 80 per cent saying it is more likely than not.
The industries seen as most attractive by sponsors include industrial (29 per cent), business services (18 per cent) and healthcare (17 per cent).
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The survey also revealed that 86 per cent of sponsors are exploring continuation funds as a liquidity solution, 38 per cent are exploring NAV loans and 11 per cent are considering selling GP stakes to free up capital.
“Our survey indicates that while private equity sponsors and middle market borrowers – the growth engine of the U.S. economy – remain vigilant of ongoing macroeconomic challenges, their expectations for the latter half of the year suggest a credit market poised for growth,” said Timothy Lyne, chief executive of Antares Capital. “The data aligns with what we’re seeing across the majority of our portfolio, one of the largest and most diverse in the industry. Borrowers, primarily across non-discretionary and highly defensive sectors, continue to exhibit strong fundamentals including year-over-year revenue and EBITDA growth albeit at a slower pace.”
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