(Bloomberg) -- Private credit lenders are flocking to finance large, fast-growing technology companies gearing up to go public, taking advantage of a lackluster market for initial public offerings and helping them get access to liquidity in the meantime.
This week, Blackstone Inc. led a private loan of just under $4 billion for Clario, a drug-trial software company looking to go public this year. And earlier this month, a group of lenders including Blackstone, Apollo Global Management Inc. and Blue Owl Capital Inc. inked a $2.75 billion term loan for Databricks Inc., one of the most valuable private software companies in the US that has delayed an IPO by repeatedly raising new money.
Direct lenders are landing such deals in part because some of these fast-growing tech firms are not making money yet. Banks typically provide financing before a company is set to go public as a way to land IPO fees, but can’t always offer the same flexibility these companies need, like loans tied to annual recurring revenue rather than earnings.
Many tech firms are also choosing to delay their IPO timelines, as the market for public offerings has been muted for the last several years. That’s left a long backlog of firms that are preparing for an offering but want to generate some liquidity in the meantime without diluting existing equity holders.
“As businesses decide to stay private for longer, they need to think about sources of capital for a variety of needs, including employee liquidity,” said Ferdinand Niederhofer, the global head of technology investing for Blackstone’s credit and insurance unit BXCI. Part of the proceeds from Databricks’ new debt was used to buy shares owned by current and former employees, Bloomberg previously reported.
“For a lot of the employees at these large software companies, a majority of their capital is tied up in equity, so private credit is increasingly being used to provide them a liquidity event,” Niederhofer said.
Private credit’s acceleration into this space hasn’t cut out banks altogether. Alongside the direct term loan, Databricks also got $2.5 billion from more than a dozen banks, including JPMorgan Chase & Co., through a revolving credit facility, which direct lenders typically don’t like to provide.
The deal for Databricks is one of many large financings for high-quality and fast-growing companies that have closed in the past year. In May, Blackstone provided $4.5 billion in debt to cloud computing firm CoreWeave Inc., alongside $3 billion in other debt split between rivals.
“A lot of companies have been waiting for the IPO window to open in the past couple of years, and so in many cases, private credit lenders are already invested in the company and ready to help with an exit strategy, including an IPO,” said David Teh, head of the alternative capital and private credit team at Simpson Thacher & Bartlett LLP.
Private For Longer
Clario, which filed confidentially for an IPO last year, is one of many large companies looking to go public in 2025, along with Smithfield Foods Inc., Venture Global Inc. and Chime Financial Inc. CoreWeave, valued in October at around $23 billion, is also weighing an IPO this year.
“There’s a shift toward a new blend of capital for pre-IPO software companies,” Niederhofer said. “Management teams are realizing that adding debt to the mix can lead to a lower cost of capital.”
Once a firm starts trading publicly, it can typically swap out private credit debt for cheaper bank financing. In 2023, dating app Grindr Inc. estimated it would save about $17 million in interest expenses by refinancing a Fortress Investment Group-led direct loan with a bank deal, Bloomberg reported. The app went public a year prior.
Some private credit firms are also lending to tech companies post-IPO. Last year, Blackstone gave a $2 billion direct loan to publicly traded Dropbox Inc. as part of a stock repurchase program. Blackstone also continued to lend to Loar Holdings, an aerospace and defense manufacturer, after the company went public to support acquisitions.
While the Trump administration is expected to usher in a more favorable market for IPOs, some private credit lenders are skeptical of a surge.
“The IPO window is opening, but I don’t believe there will be an immediate deluge,” said Erik Bissonnette, Blue Owl’s co-head of technology investing. “A limited number can go at any given time and companies have ongoing capital needs that we can provide.”
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--With assistance from Rene Ismail.
