Private debt funds flock to smaller deals

The proportion of large- and mid-cap private debt deals dropped last year in favour of smaller transactions, as lenders flock to the lower end of the market for more favourable pricing.

Data compiled by Preqin, shared with Alternative Credit Investor, showed that the share of mid-cap deals – those between $100m (£77.3m) and $500m – fell to 19 per cent last year from 25 per cent in 2023.

Large-cap deals – those of $500m and more – fell from 41 per cent of the market in 2023 to 36 per cent in 2024.

Read more: Signs of moderation in direct lending returns

Conversely, small-cap deals – under $100m – rose from a 34 per cent share of the market in 2023 to 45 per cent in 2024.

Antonello Aquino, managing director for EMEA private credit at Moody’s Ratings, said that the shift of private capital can be motivated by several market trends.

“LBO activity has been depressed over the last two years,” he said. “Consequently, more direct lending activity has taken the form of add-on transactions, which tend to be smaller in size.

Read more: Largest managers and funds increasingly dominate private credit

“The prevalence of smaller deals may also be attributed to less margin compression in the small-cap segment compared to the rest of the market.

“Direct lenders are less competitive on pricing on the upper-middle-market deals compared to the resurgent broadly syndicated loan market and by targeting of smaller, somewhat riskier businesses allows direct lenders to charge higher interest rates.”

917 private debt deals were recorded in 2024, with an average deal size of $1,113.1m. This compared to 878 deals in 2023, with an average deal size of $1,322.7m, according to Preqin data.

Read more: Trouble bubbling for private credit managers after so-called “golden age”

Aggregate deal value fell from $146.8bn in 2023 to $104.6bn in 2024.

This year, 132 deals have been recorded as of 6 March 2025, with an average deal size of $775.7m, totalling $1.6bn.