: Tighter credit affecting M&A deals for targets and buyers

by | Nov 16, 2022 | Stock Market

High interest rates now being offered for the safest types of corporate debt are both a motivator and a hurdle for deals, with different paths forward for buyers and sellers, investment specialists said recently. Companies faced with debt-heavy balance sheets may be more motivated to agree to a private-equity buyout or other deal, partly because of slack demand for riskier types of debt under current lending conditions.

It’s also more expensive for buyers either from the corporate world or the private-equity universe to buy companies, due to higher interest rates on debt. “It’s very hard to make a leveraged buyout work … at those rates of borrowing, [but] it doesn’t mean it can’t work,” said Greg Olafson, co-president of alternatives at Goldman Sachs Asset Management, which handles alternative investments outside of traditional stocks and government bonds for Goldman Sachs Group Inc.
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Speaking Monday at a media roundtable on the firm’s 2023 investment outlook, Olafson said the firm sees private credit as one of the more fruitful of the firm’s six direct avenues of investment: private equity, growth equity, private credit, infrastructure, real estate and sustainability. Borrowing costs for private-equity firms have often climbed to 700 to 750 basis points over the benchmark federal-funds rate, up from 500 to 550 bas …

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