Credit Market Outlook Survey
KEYTAKEAWAYS
- Optimism for U.S. economic growth picks up.
- Revenue and earnings growth expectations favorable and improved from mid-year survey, with most expecting margins to expand.
- Hiring set to rise with industry demand outlook still favorable, but labor availability and cost remain a challenge.
- PE Sponsors expect a pickup in M&A activity over the next 12 months, with buyer appetite stronger than seller appetite. However potential headwinds include Geopolitical Risk which sponsors cited as the top risk to their portfolio and investment strategy.
- Organic Sales Volume Growth, Competitive Industry Pressures and Labor are top-of-mind for borrowers, but external factors such as Interest Rates, Geopolitical Risks and Tariffs are not far behind. Only 3% currently see AI disruptions as a source of risk.
- Industrials gain strength as a top sector of interest for private equity sponsors followed by Business Services and Healthcare.
Antares Insights
Survey results support Antares’ increasing optimism for U.S. economic growth and a robust M&A environment in 2025.
Most borrowers forecast further improvement in company operating metrics, anticipating organic revenue, EBITDA and margins to continue to grow. Furthermore, hiring is expected to increase as the demand outlook remains favorable, but some borrowers note that labor availability and cost continue to pose a challenge to hiring. This supports our belief that a resilient labor market and strong consumer consumption will continue to drive healthy economic growth in 2025.
Private equity sponsors’ dealmaking sentiment continues to improve, with 80% of sponsors expecting higher rates of deployment in 2025. While sponsors cite high interest rates as a continuing impediment to M&A activity, buyer appetite remains robust with most sponsors anticipating purchasing a new portfolio company in the first half of 2025. Sponsors believe the Industrial, Business Services and Healthcare industries offer the most attractive opportunities for investment.
We believe that growing optimism around the economic and business environment alongside elevated levels of PE dry powder will serve to catalyze M&A activity in 2025, possibly resulting in M&A volumes posting the second-best year on record should volumes increase in line with historical post-election year bumps.
Methodology
Antares conducted this survey over a two-week period between November 12, 2024 and November 26, 2024, via email outreach. The key takeaways are based on survey responses from a total of 80 private equity (“PE”) sponsors and 59 Antares borrowers from a diverse set of industries and business models. The survey was in market after two interest rate cuts (50bps on September 18 and 25bps on November 7th), after the U.S. Presidential election and prior to the pronouncement on imposing tariff increases for Mexico, Canada and China by President-elect Trump. The mid-year survey referenced throughout gathered sentiment on expectations for the second half of 2024 and was conducted between May 29, 2024 and June 21, 2024. Responses were received from 138 PE sponsors and 60 Antares borrowers. 2
About Our Borrower Respondents
Industry in Which They Operate End Markets They Serve
| 25% | Healthcare | 5% 5% | Industrial | |||
| 24% | Industrial | 7% | Healthcare | |||
| 17% | Business Services | Consumer | ||||
| 14% | Consumer | 14% | Financial Services | |||
| 10% | Software/Technology | Business Services | ||||
| 7% | Financial Services | Software/Technology | ||||
3% Other
Most (63%) borrower respondents expect modest or strong growth over the next 12 months with only 35% expecting slower growth and 2% expecting negative growth. This outlook is significantly improved versus our mid-year survey in which 78% respondents expected slower growth and 10% expected negative growth in the second half of 2024 (“2H2024”).
| 49% | Modest growth (2-3%) |
| 35% | Slow growth (0-2%) |
| 14% | Strong growth (3+%) |
| 2% | Negative growth (<0%) |
Most (85%) borrower respondents expect healthy organic revenue growth in 2025 with 58% expecting modest growth and 27% expecting strong growth of 10% or more. Only 15% of respondents anticipate low-to-flat growth in 2025. This is a positive shift from our mid-year survey in which 22% of respondents foresaw slow growth and 10% anticipated negative growth in 2H2024.
An even higher number (90%) of borrower respondents expect healthy organic EBITDA growth in 2025 – which correlates with responses on margin improvement. Specifically, 39% are expecting strong growth and 51% are expecting modest growth. Similar to revenue, no respondents are expecting EBITDA to decline in 2025 (compared to 5% of mid-year survey respondents) and only 10% are expecting low-to-flat growth, down from 22% at mid-year.
66% of borrower respondents expect margins to grow in 2025, 31% expect margins to remain flat, and only 3% anticipate margin pressure suggesting inflationary pressures have abated. (Note: this survey was taken prior to planned tariff increase pronouncements).
This outlook is more favorable than at mid-year when only 27% of respondents were expecting margin improvement, with the majority (53%) expecting margins to be flat, and a substantial 20% expecting margins to decline in 2H2024.
| 5% | Decline (<0%) |
| 22% | Low to flat growth (0-2%) |
| 31% | Modest growth (3-9%) |
| 42% | Strong growth (10%+) |
| 0% | Decline (<0%) |
| 10% | Low to flat growth (0-2%) |
| 51% | Modest growth (3-9%) |
| 39% | Strong growth (10%+) |
How do you expect your EBITDA margins to perform versus prior year?
| |
100%
Mid-Year Survey
80%
60%
20%
53%
27%
Decline Remain flat Improve
Year-End Survey
40%
20%
0%
Mid-Year Survey
Year-End Survey
3%
31%
66%
Decline Remain flat Improve
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Top Challenges for Borrowers for 2025
(Borrowers could select up to 5)
| Organic Sales Volume Growth | 53% |
| Labor Availability – Recruitment & Retention | 49% |
| Competitive Industry Pressures | 48% |
| Interest Rates / Fed Policy | 48% |
| Geopolitical Risks | 35% |
| Labor Costs | 32% |
| Tariffs | 32% |
| Expanding Market Share | 25% |
| Implementing Price Increases | 25% |
| Cybersecurity | 15% |
| M&A Integration | 14% |
| Company Culture | 12% |
| Industry-Specific Regulations | 12% |
| M&A Execution | 12% |
| Raw Material Costs | 9% |
| Inventory Destocking | 7% |
| Supply Chain Disruption | 7% |
| Other | 5% |
| AI Disruption | 3% |
| Freight Costs | 3% |
| Climate Risks – relating to specific markets | 2% |
Top Challenges for Borrowers by Industry for 2025
Most borrower respondents (66%) expect their net headcount to increase in 2025 over 2024 with only 7% expecting a decline. This compares favorably versus our mid-year survey when 28% of survey respondents expected net headcount to remain flat and 20% expected a decline through 2H2024.
| 3% | Decline |
| 40% | Remain flat |
| 57% | Improve |
| 3% | Decline |
| 44% | Remain flat |
| 53% | Improve |
PE sponsors are anticipating higher rates of capital deployment in 2025. 80% (up from 49% at mid-year) of PE sponsor respondents expect their investment ($ volume) to rise in 2025 versus 2024, including 40% (up from 22% at mid-year) who anticipate it to be up 15% or more from 2024.
83% of PE sponsor respondents note a 50%+ likelihood they will buy a portfolio company in the first half of 2025, with 51% projecting odds at more than 75%. This projection is in line with mid-year expectations.
More than half (57%) of PE sponsors note a 50%+ likelihood they will sell a portfolio company in the first half of 2025, with 26% seeing the odds at more than 75%. This is also in line with mid-year expectations, however 33% indicate they are between a 0-25% likelihood to sell, which is up from 19% at mid-year.
51% of borrowers indicate high interest rates remain an impediment to M&A activity (vs 53% at mid-year), although Antares expects this pressure will abate some in 2025 based on the SOFR curve and favorable earnings growth prospects.
Versus prior year, you anticipate your investment ($ volume) deployed for new platforms (i.e., LBOs) to:
100%
80%
60%
Mid-Year Survey
| 13% Decline modestly 30% Be flat 27% Rise moderately 22% Rise sharply |
8% Decline sharply
40%
20%
0%
Mid-Year Survey Year-End Survey
| 0% Decline sharply 6% Decline modestly 14% Be flat 40% Rise moderately 40% Rise sharply |
Year-End Survey
Top Sectors of Interest for PE
Liquidity Solutions
Compared to mid-year, Continuation Funds remain the most popular vehicle for PE sponsors to utilize as a liquidity solution at 76%, 59% are exploring preferred equity, followed by
25% exploring NAV loans (down from 38% at mid-year), and 14% are considering selling GP stakes to raise capital (down slightly from 11% at mid-year).
Private Equity Sponsors’ Top Risks to Portfolio and Investment Strategy in 2025
(PE sponsors could select up to 3)
| Geopolitical Risk | 48% |
| Asset Valuation | 42% |
| Labor – Cost, Availability, Recruitment, Retention | 38% |
| Inflation | 28% |
| Supply Chain Risk | 26% |
| Monetary Policy | 23% |
| Post-Election Uncertainty | 19% |
| AI Disruption | 15% |
| Public Sector Spending | 12% |
| Industry-Specific Regulations | 10% |
| Cybersecurity | 8% |
| Other | 7% |
| Climate Risks – Related to Shifting Market | 3% |
About Antares
Founded in 1996, Antares has been a leader in private credit for nearly three decades. Today, with approximately $73 billion of capital under management and administration as of September 30, 2024, Antares is an experienced and cycle-tested alternative credit manager. With one of the most seasoned teams in the industry, Antares is focused on delivering attractive risk-adjusted returns for investors and creating long term value for all of its partners. The firm maintains offices in Atlanta, Chicago, Los Angeles, New York, Toronto and London. Visit Antares at www.antares.com or follow the company on LinkedIn at https://www.linkedin.com/company/antares-capital-lp. Antares Capital is a subsidiary of Antares Holdings LP, (collectively, “Antares”). Antares Capital London Limited is an appointed representative of Langham Hall Fund Management LLP, an entity which is authorized and regulated by the Financial Conduct Authority of the UK.
Disclosures
The materials presented herein are proprietary to Antares Capital LP and its affiliates (collectively, “Antares Capital”).
These materials are being provided solely for informational purposes only and are not intended to be a recommendation or advice of any kind, and shall not be construed to create any fiduciary, advisory or other relationship, or the provision of any investment advice or service. These materials are not, and should not be construed to be, a proposal, a commitment, or a contract to lend, provide any financing, or sell any securities or financial instruments, or an offer to enter into any of the foregoing, and shall not be deemed to obligate Antares Capital in any manner whatsoever.
Antares Capital does not represent or warrant the accuracy, completeness or reliability of any of the information contained herein, either expressly or impliedly, for any particular purpose, and shall have no duty to update or correct any such information. Recipient agrees that it will not rely on the information contained herein, and will conduct its own due diligence. In no event will Antares Capital be liable for any losses or damages arising from or as a result of the use of the information or the materials contained herein. Past performance is not a guarantee of future results.
Any statements involving matters of opinion or estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that such opinions or estimates will be realized. The statements and expressions of opinion contained in this presentation are subject to change without notice and involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon nor should they form the basis of an investment decision.
The materials presented herein may contain information concerning economic trends, performance and market analysis and such information may be based on or derived from information provided by our sponsor or borrower relationships who were not compensated for completing the survey. Antares believes that such information is accurate and that the sources from which it has been obtained are reliable; however, none of Antares nor any of its affiliates or agents can guarantee the accuracy of such information and they have not independently verified and are not responsible for any inaccuracies, omissions and dated information contained in such third-party information or the criteria and assumptions on which such information is based. Certain other information regarding market analysis and conclusions could be based on opinions, criteria or assumptions (including those of Antares) that Antares considers reasonable. Such market analysis and conclusions represent the subjective views or beliefs of Antares.
Expectations and views are as of January 2025, the date of publication, and subject to change.