Mergermarket: Australian private credit providers set for more consolidation in 2025 as market matures

by Louise Weihart

Summary
Key drivers are economies of scale and desire to increase AUM
Attractive for both international and domestic funds seeking exposure
Niche managers will need to scale or consolidate to stay competitive
Australian private credit providers are set for more consolidation in 2025 as the market matures, according to dealmakers polled by Mergermarket.

There were several deals last year, notably Singapore-based CapitaLand’s confirmation in December that it intended to acquire Melbourne-based Wingate for AUD 200m (USD 172m), and the purchase of a 35% stake in Melbourne-based private credit fund manager Privity Credit (previously Dinimus) last September by APAC GP-staking firm Scarcity Partners for an undisclosed amount.

Justin McLaughlin, investment director of Scarcity Partners noted that the sector is attractive for both international and domestic funds seeking exposure to a growing market.

Australia is a prime target for consolidation as it has a buoyant private credit market that has seen an influx of global and local credit funds over the past few years, according to Elizabeth Hundt Russell, partner at law firm Clifford Chance. The prevalence of these credit funds reflects the confidence lenders have in the Australian economy and its relatively predictable and stable insolvency and enforcement regime, compared with some other APAC markets, she said.

“Consolidation was a notable feature of the private credit market generally in 2024, headlined globally by the announcement of New York-based BlackRock’s proposed acquisition of HPS Investment Partners in December,” said Clifford Chance Partner David Clee.

With the key drivers of consolidation, namely economies of scale and a desire to increase assets under management (AUM) remaining unchanged, we consider the conditions for further consolidation in 2025 to remain favourable, Clee said.

“As more capital enters Australia, there will be downward pressure on loan returns and management fees, and increased competition for investor dollars, and funds with scale will be better placed to manage this scenario,” said Patrick William, managing director of Sydney-based private credit firm Rixon Capital.

Ryan Donnar, managing partner at Privity Credit, told Mergermarket his firm is looking to scale organically and via acquisition, with the backing of Scarcity Partners, as it sees an opportunity to drive consolidation in an evolving market.

“Australia has been late to private credit, but the market is catching up fast, with demand also being fuelled by the weak IPO market, tighter bank lending, and strong private credit yields,” Donnar said. Players are looking to scale, diversify, and take advantage of this, especially in a market where private credit is still relatively nascent compared to the US or Europe, he said.

“The numbers speak for themselves,” agreed Scarcity Partners’ McLaughlin. “Private credit is circa 70% of lending in the US and 50% in Europe with private lending in Australia estimated to be just 5% of total lending. Private lenders are growing faster than the system growth rate in credit and taking market share from banks.”

Buy-side demand coming from all angles

“Buy-side demand is coming from all angles,” according to Rixon Capital’s William. He pointed to Regal Partners’ [ASX:RPL] acquisition of Merricks Capital in June 2024 for AUD 235m as an example of a domestic fund manager achieving scale benefits by bolting on a similar player with a similar strategy.

HMC Capital’s [ASX:HMC] acquisition of Melbourne-based commercial RE private credit fund manager Payton Capital for AUD 127.5m in July 2024 was an example of a domestic fund manager acquiring a private credit strategy to diversify its investment offering, he said.

Local multi-asset managers are also diversifying into private credit for growth as seen with Pinnacle Investment Management [ASX:PNI], an early backer of private credit, taking a 35% stake in Metrics Credit for AUD 46m in 2018, William added.

“Then there are the regional asset managers, especially in Southeast and East Asia, that will seek to make private credit acquisitions in Australia to own the end investment fund and access some degree of exclusivity for client capital”, he said.

Other private credit providers are the most logical consolidation partners, according to Clifford Chance’s Clee. “We consider any market player has the potential to be a participant in a consolidation transaction, and there’s also plenty of opportunity for local private credit managers to consolidate complementary strategies and build scale.”

Prime candidates for consolidation

Australia has a growing number of private credit managers, many in commercial real estate, but we are also seeing more niche managers enter the space and many will need to scale to stay competitive,” Privity’s Donnar said, noting that most have under AUD1bn in AUM, making them prime candidates for consolidation.

“Managers with niche strategies will also be sought out to build broader lending
platforms, while others will want to align with multi-asset investors,” he said. Australia’s private lending sector only has a limited number of larger managers ripe for acquisition, but a long tail of smaller players, many of which will need to scale or
consolidate to stay competitive, agreed Scarcity Partners’ McLaughlin.

“Anyone buying a smaller private credit manager needs to able to add substantial value in growing the business, which extends well beyond just being a capital partner,” he added.

The best quality targets in corporate lending are likely to be high-quality emerging niche funds with AUD 100m-AUD 250m in AUM, Rixon Capital’s William said. “This range comprises managers that are large enough to have brand recognition and track record and small enough to be aligned with investor interests, as well as a price tag that is manageable.”

by Louise Weihart in Sydney
Published with permission by Mergermarket (an ION group company