What If Lending to Your Own Buyout Gets Sticky?
Private equity firms are acting as owner and lender to portfolio companies. The perceived conflict is easily managed in theory. Wait till that gets properly tested.
Sticky?
Photographer: Jordan Lye/Moment RF
The private equity industry’s push into credit is so well advanced that no one bats an eyelid when the same buyout firm is invested in the debt and equity of the same portfolio company. The question is what happens if that business gets into difficulty — and the interests of owners and lenders diverge.
The €14 billion ($15 billion) buyout of Nordic classifieds firm Adevinta ASA is the latest example of the private capital industry helping to finance its own buyouts. Funds run by Permira and Blackstone Inc. are leading a consortium stumping up the equity, although the sum is reduced by existing shareholders rolling over part of their stakes. Meanwhile, Blackstone credit investors are among those providing the debt. These so-called direct lenders are stumping up some €4.5 billion to help get the deal done. That’s a record in Europe and it’s hard to see that this would have happened even just a few years ago.