With a sanguine market outlook, particularly when it comes to breaking the M&A logjam in a more permissive regulatory environment, firms are racing to scale up their private credit operations to take advantage.
BlackRock may have fired the starter’s pistol with its $12B acquisition of private credit specialist investment manager HPS Investment Partners, but competitors are picking up the pace on scale-driven moves of their own. Todd Boehly’s Eldridge Industries has announced plans to streamline some of its businesses – including credit – managing $74B in assets in a move he said was driven at least in part by “the value of scale.” And $290B Singapore-based global investor Temasek said it is establishing a wholly-owned $7.45B private credit platform in an effort to “scale its credit and hybrid solutions portfolio and capture global private credit opportunities.”
BlackRock CEO Larry Fink also cited scale in announcing the HPS deal, which Jonathan Lamm, CFO of Blue Owl’s business development companies, dubbed a “defining transaction” in remarks at Bloomberg Intelligence’s 2025 credit outlook conference on December 5. Speaking at the same event, Ana Arsove of Moody’s Ratings characterized the move as a “necessity” for BlackRock, with the CIO of Blackstone’s credit and insurance unit, Michael Zawadzki, adding that scale is critical across liquid, private, and structured credit solutions.
The importance of scale boils down to a handful of factors, according to McKinsey & Company’s private capital practice. In a September report, the team said scale can be the competitive differentiator when it comes to private credit. First, a lender’s ability to anchor or lead a facility through a scaled commitment can be incredibly advantageous for both access and deal terms. Scale can even be seen as a cost of entry, where only the largest lenders can compete on the largest investment-grade company and commercial real estate financings or major infrastructure projects. Finally, on the fundraising side, incremental capabilities across distribution, operations, and technology make for more effective capital raising, and larger managers are better able to make these investments.
But why the sudden emphasis on scale, or more importantly, why now? Managers sense a coming wave of M&A following several fallow years. “People don’t realize that, for the last three years, we’ve been hovering at 30-year lows in terms of M&A volume as a percentage of nominal GDP,” Zawadzki told attendees at the Bloomberg event. According to PwC, global deal volume in the first half of 2024 was down 25% from the prior year, which was itself a continuation of a downward trend, with deal volumes of 23,000 and deal values of $1.3T paling in comparison to the heights reached in the second half of 2021 of 34,000 deals and $2.7T in value.
Zawadzki said that as rates fall, macro factors remain resilient, and dry powder builds, more activity is inevitable. Or, as Boehly put it in an interview with Bloomberg TV, “We’re very bullish on M&A, we’re very bullish on the activity, the velocity of capital moving around, going forward.”
“I think we’re going to continue to see markets embrace private credit … [and] we think those are big opportunities in markets that are going to continue to develop, especially geographically,” he added.
