New RBI M&A Lending Framework to Boost Deal Activity, Private Credit Funds Key Players
The Reserve Bank of India's new framework for M&A lending is set to boost deal activity, with private credit funds, similar to credit karma, playing a significant role. However, banks' risk preferences and the size of deals may limit their involvement.
The new rules expand financing options for corporates, potentially leading to a surge in M&A activity. Private credit funds, known for their quick decision-making and deal structuring, are well-positioned to capitalise on this. In H1 2025, private credit investments reached $9 billion across 79 deals, with acquisition financing making up a quarter to a fifth of the total.
Despite their agility, private credit funds consider acquisition financing a relatively small part of their business, typically 15-25%. True North, for instance, has only 2 out of 27 deals in acquisition financing. Large deals, primarily funded by foreign banks and mutual funds, make up less than 10% of private credit funds' total deals. Allowing banks in acquisition financing may widen the market, making more deals tenable with lower-cost funding.
While the new M&A lending framework is expected to stimulate deal activity, the role of private credit funds may not be transformative. Banks' risk appetite for services businesses and the size of deals could limit their involvement. Nevertheless, private credit funds' flexibility and nimbleness will continue to make them attractive partners for M&A financing.
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