Oaktree: Leveraged buyouts could return this year
Oaktree Capital Management investment experts are hopeful of a return to leveraged buyouts this year.
M&A activity has been muted despite high expectations following the election of President Donald Trump and an anticipated release of so-called ‘animal spirits’.
Speaking on an Oaktree podcast, Christina Lee, co-portfolio manager for the firm’s US private debt strategy, observed that “there’s still a significant amount of dry powder” in private equity, sitting at around $2.5tn (£2tn).
“There’s an estimated $2.26tn financing gap today,” she said. “So, when M&A comes back, there will be an increased need for private debt”.
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Assistant vice president Harry Whitelaw noted that “even a relatively small percentage uptick in LBO volume…can mean a lot of absolute volume” and demand for junior capital.
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Lee acknowledged the impact of the US’s new tariff policy on mergers and acquisitions.
“Sponsors don’t want to go out with a transaction or a potential transaction and not be able to sell their company, because that typically will reduce their purchase price multiple the next time they try to sell it,” she said. “And so, we haven’t really seen that big tick-up that everyone was anticipating at the end of 2024.”
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“It’ll be interesting to see how the end of 2025 shakes out, because there is this push-pull demand dynamic happening where right now, M&A is on a chill because there’s so many different policies going on”, she said.
“There’s so much uncertainty. You’re hearing stagflation, that word, more and more, but at the same time, sponsors need to make distributions to their limited partners. The limited partner’s saying, ‘Where are my distributions? We need exits.’
“And so, that should help with M&A, but this year is turning out quite a bit different than what people anticipated at the end of 2024.”
