USA Trends and Developments Contributed by: Nicholas A Dorsey, Ryan J Patrone, Kelly M Smercina and Margaret R M Rallings, Cravath, Swaine & Moore LLP
Continued utilisation of alternative modes of acquisition financing Amid highly volatile market conditions and hawkish US federal monetary policy, alternative methods of financing (such as direct lending and seller financing) and equity financing continued to be used in 2024. While interest rates stabilised and then began to decline in 2024, alternative modes of acquisition financing will likely remain active in response to growing demand for lower financing costs, execution efficiency and flex- ibility. Direct lending While public credit market activities remained relatively low in 2024, direct lending – where a loan is extended and held directly by a private lender, rather than arranged by a bank and then syndicated to other investors – continued to be popular. The proliferation of direct lending can be traced back to the decade following the 2008 global financial crisis, when, as a response to the crisis, the US government passed a wave of laws and regulations (most notably, the Dodd- Frank Act of 2010) subjecting US banks to greater regulatory scrutiny and stricter capital and liquidity requirements. US regulators also cautioned banks against engaging in practices they considered to be particularly risky. For example, in March 2013, US regulators released guidance highlighting the risks associated with highly leveraged buyouts, especially those where leverage ratios exceed six times the borrower’s earnings before interest, taxes, depreciation and amortisation (EBITDA). These limitations and scrutiny reduced both the willingness and ability of US banks to finance highly leveraged buyouts and other aggressive transactions, and created an opening for direct lenders to finance these transactions.
Acquisition Finance in the USA: An Introduction Overview of 2024
Against a challenging macroeconomic and geo- political backdrop, acquisition financing and M&A activity more generally remained somewhat muted in 2024. Despite a decrease in M&A deal volume, the overall value of M&A deals and of leveraged buyout loans increased compared to 2023. There were 12,290 public and private M&A transactions involving US targets in 2024, decreasing 20% from 15,363 transactions in 2023 and 20.1% from 15,398 transactions in 2022. However, M&A deal value in the United States totalled USD1.43 trillion in 2024, increas- ing 4.6% from USD1.37 trillion in 2023 and 1.5% from USD1.41 trillion in 2022. US leveraged buyout loans totalled USD73 billion in 2024, an increase of 73.7% compared to USD42 billion in 2023 and a decrease of 20.3% compared to USD91 billion in 2022. Furthermore, at the end of 2024, there were several blockbuster “mega-deals” in the food, healthcare and tech sectors. From an acquisition finance perspective, note- worthy transactions from 2024 include: • Mars’s pending USD36 billion acquisition of Kellanova, which is anticipated to be funded by a combination of cash on hand, USD26 billion of new senior notes and other sources of financing; and • Synopsys’s USD35 billion acquisition of Ansys, which is anticipated to be funded by a combination of cash on hand, USD10 bil- lion of new senior notes and Synopsys’ new USD4.3 billion term facility. Recent trends and developments are now high- lighted.
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