90%

Do you know that ~90% of the companies in the U.S. that generate $50M to $250M of revenue annually are private companies? Do you know that there are ~200,000 private middle market companies in the united States?

The cohort of companies with $50M to $250M of annual revenue represents companies that Marathon focuses on in the Middle Market and nearly all are privately owned: ~90%! 

Marathon Asset Management estimates that there are 10,000+ Private Equity Sponsor-owned Middle Market Companies in the U.S.

I believe next year (2025) will prove to be a strong vintage year for Direct Lending funds as the stars are aligned. The LBO machine will turn it up a notch, Fed is easing rates/credit conditions, default rates will decline, and corporate earnings and GDP are trending well.

Capital Allocators must differentiate between managers and strategies:

– Middle Market Loans (tight covenants & wider spreads) vs. Upper Middle Markets (weaker covenants & tighter relative spreads and also faces competition with the Broadly Syndicated Loan market).

– Middle Market Loans backed by PE Sponsor have a loss rate of ~70bp TTM vs. Middle Market Loans backed by Non-PE Sponsor have a loss rates of 1.3%; nearly 2x sponsor-led deals.

– Quality of Deal Flow (debt-to-EBITDA ratio, LTV, fixed charge ratio, free-cash flow, amortizing debt, cash-pay or PIK, cyclical vs non-cyclical business, etc.) and how it translates into better performance and lower losses?

– What is the Private Credit manager’s Historical Loss Rates?

– What is the Private Credit manager’s sourcing edge?

With over 10,000 PE owned companies, a Private Credit manager can be highly discerning. It is a great time to lender in this market environment and Private Credit can be a great diversifier for investor’s portfolios.