Mergermarket’s Post

Name: Creating a niche in private credit
Uploaded: 2024-06-12T11:00:12.986Z
Duration: 3 min 29 s
Channel: Mergermarket

Mergermarket

40,102 followers

5mo

How have interest rates impacted the workflow of private equity firms and companies interested in expanding? Giovanni Amodeo sat down with Christian Fritsch, founder of ELF Capital Group, to explore the benefits of carving a niche in the private credit market. Fritsch discussed the challenges and opportunities within the sector, noting that out of 300 opportunities assessed over 16 months, only 7 were finalized, highlighting their selective and cautious approach to investment. Watch the full discussion now: https://lnkd.in/eTvvurD4 #IONInfluencers

Transcript

At the beginning of the year, the market was quite bullish on the Fed cut in the interest rate and there was predicting 3456 times. Now maybe one, maybe maybe not. Some people say that interest might go up. So how does this affect the workflow for the private firms and then the companies interested in expanding versus you then providing financing? You know, I think the the private equity firms these days, they are struggling a little bit in disposing of some of their participations. In some cases they are even struggling and that's what I heard at one of your merger market conferences the other day in in hitting the. The hurdle rate. So they're holding on to some of those situations. On the other hand, the banks have been quite actively trying to get back into the segment. So some of the private debt funds have been refinanced, the classical Unitrans lender providing capital to private equity houses. Over the last two and a half, three years, those structures have been done at E + 650 + 700. Right now, the banks are moving into the space. They're refinancing people out at E + 455. On it. So that's and apart from that, I think that that guys focused on sponsored businesses, they are not doing a lot of investments right now. There's not a lot of activity. And it's been clear that even if you have a couple structure where 50% comes from equity, 50% comes from a financing, this is not attractive enough. Yeah, the total yield which we can generate is is less than before. If you have different capital structures, more leveraged buyouts. On the other hand, for us, we do see more and more opportunities coming in an interest environment which is higher. So as I said before, companies are in the need for capital and they're willing to pay up for capital. Some business they are taking advantage, they want to consolidate in this interesting environment and they don't get the capital for doing that. But overall, our assumption is now for the next generation that we'll have in Europe or in the range of two to 2 1/2 percent average over the lifetime of the fund. And that's how we do markets, so the funds as well. And then you work for a bank, you work for a smaller, bigger funds. So now you're on the other side. Is a debt provider. What's the advantage of being a niche provider we just one main strategy rather than being integrated asset manager with more strategies? Based on what you just said and it's a clearly defined product, so people know where to go to in case they're looking for this type of capital. It took some time to position ourselves as kind of a niche player, but niche means to us only a niche in the terms of the product itself, not a niche in the opportunity set which we have. So the niche is defined by mid market companies in those jurisdictions, in the beer drinking countries and size wise. So that's the niche which we have. And we clearly defined this on purpose because for us this is the least competitive space and there's the vast majority of companies out there looking for this capital.

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Mergermarket’s Post

Creating a niche in private credit

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