An “explosion of private debt” is starting to fuel transactions after a prolonged dealmaking slump, according to Lazard Ltd. Chief Executive Officer Ken Jacobs, whose firm is seeing a rebound in merger fees.
“You have this massive source of capital in private capital now,” Jacobs said in a telephone interview after announcing second-quarter results that beat analysts’ estimates. “The growth of the private credit markets has really supercharged the ability of companies to get financing.”
Lazard is betting that a boom in companies raising money for private debt vehicles will help fill the void left by banks with constrained lending capacity. Jacobs said he expects that more readily available financing will fuel an uptick in mergers, while companies restructuring their finances may avoid bankruptcy, given the willingness of private debt firms to provide more capital.
“Financing is more expensive, although highly accessible at this point,” Jacobs said, adding that terms on private capital deals, particularly for troubled companies, can be “pretty harsh.”
Small to midsize businesses that previously relied on smaller banks are increasingly turning to private capital, according to the CEO, who plans to hand over the top job to Peter Orszag on Oct. 1. Larger companies will also start turning to private debt funds, he said. Such activity could help boost a mergers and acquisitions market that dropped 40 percent this year to $1.4 trillion, according to data compiled by Bloomberg.
While Lazard’s fees tied to the financial-advisory business dropped 15% in the second quarter from a year earlier, they rose 26 percent from the first three months of the year to $344 million. Jacobs said activity should start rebounding by the end of 2023 into next year.
“We see early signs of recovery,” he said, though he warned that the recovery could come in “fits and starts.”
