Cloud 9fin In private credit, smaller is sometimes better
Apr 7, 2025
Bill Sacher, a Partner and the head of private credit at Adams Street, delves into the fascinating world of private credit investing focused on the core middle market. He discusses the appeal of smaller companies with sub-$50 million EBITDA, where covenant structures remain robust. As larger managers compete for deals, Sacher highlights the optimism around recovering deal flow despite challenges like inflation and geopolitical risks. The conversation also touches on the pressures of pricing in this dynamic landscape and the resurgence of fundraising efforts amidst evolving investor demands.
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Core Middle Market Deal Flow
- Deal flow in the core middle market is currently below average, but there are reasons for optimism.
- Private equity dry powder, sponsor motivations, and open financing markets suggest future growth.
Pricing Pressure in Core Middle Market
- Pricing pressure exists in the core middle market due to high demand and limited deal flow.
- This differs from the upper middle market where competition with broadly syndicated loans drives pricing.
Spread Widening Factors
- Potential economic softening from trade wars and tariffs could widen spreads, increasing deal risk.
- However, strong technical factors like limited deal flow could offset this effect, keeping spreads tight.