Key Takeaways
- • Private debt financed 77% of global leveraged buyouts in 2024, the highest share in at least a decade, with banks accounting for only 23%—their lowest proportion since 2015.
- • Private debt's dominance has accelerated into 2025, funding 83% of the 53 leveraged buyouts announced through January 22, signaling sustained structural market shift.
- • Regulatory capital charges and balance sheet constraints have forced banks to retreat from leveraged finance, particularly in middle-market deals where profitability is insufficient to justify maintaining large lending teams.
- • Direct lenders are capturing market share by offering speed and certainty in loan execution—advantages that syndicated bank processes cannot match—driving sponsor preference for private debt even as banks regain some traction in megadeals.
- • The buyout market faces a $1.2 trillion funding gap, which private debt providers are systematically filling as traditional bank syndication capacity remains constrained.
Summary
Private debt has achieved its highest penetration of leveraged buyout financing in at least a decade, fundamentally reshaping the capital structure of acquisition finance. According to Preqin data, private debt accounted for 77% of global LBO financing in 2024, with banks reduced to a 23% share—the lowest level since at least 2015. This structural rebalancing has only intensified in early 2025, with private debt financing 83% of the 53 leveraged buyouts announced through January 22, indicating the shift is not cyclical but represents a durable market transition.
The displacement of bank capital reflects multiple structural headwinds facing traditional leveraged finance providers. Increased regulatory pressure has constrained banks' ability to deploy their full balance sheets toward leveraged transactions, according to Nick Holman, partner and head of UK and Ireland at Kartesia. Nicolas Nedelec, a partner at Eurazeo, identified loan economics as a secondary but critical factor: the capital charges and profitability calculations for middle-market deals have become unattractive relative to the cost of maintaining large lending teams. Investment banks retain some competitive advantage in megadeals, where their syndication capabilities allow them to distribute risk more effectively, but smaller and mid-sized transactions have become the domain of direct lenders.
Private debt's competitive advantage extends beyond capital availability. Direct lenders offer faster execution and greater certainty of loan closing compared to traditional syndicated bank processes, reducing execution risk for sponsors. Oliver Baker of Partners Group noted that while banks recovered some market share in megadeals during 2024, they remain constrained by sensitivity to broader market conditions and their perceived ability to syndicate risk—factors that do not hamper private credit providers with permanent capital bases.
The $1.2 trillion funding gap in buyout financing—set against $1.7 trillion in dry powder as of mid-2025—represents the structural opportunity driving private debt's expansion. As banks continue facing regulatory and economic constraints, private debt funds are positioned as the primary source of leverage for private equity acquisitions, fundamentally altering the relationship between sponsors, banks, and non-bank lenders across the leveraged finance ecosystem.
The displacement of bank capital reflects multiple structural headwinds facing traditional leveraged finance providers. Increased regulatory pressure has constrained banks' ability to deploy their full balance sheets toward leveraged transactions, according to Nick Holman, partner and head of UK and Ireland at Kartesia. Nicolas Nedelec, a partner at Eurazeo, identified loan economics as a secondary but critical factor: the capital charges and profitability calculations for middle-market deals have become unattractive relative to the cost of maintaining large lending teams. Investment banks retain some competitive advantage in megadeals, where their syndication capabilities allow them to distribute risk more effectively, but smaller and mid-sized transactions have become the domain of direct lenders.
Private debt's competitive advantage extends beyond capital availability. Direct lenders offer faster execution and greater certainty of loan closing compared to traditional syndicated bank processes, reducing execution risk for sponsors. Oliver Baker of Partners Group noted that while banks recovered some market share in megadeals during 2024, they remain constrained by sensitivity to broader market conditions and their perceived ability to syndicate risk—factors that do not hamper private credit providers with permanent capital bases.
The $1.2 trillion funding gap in buyout financing—set against $1.7 trillion in dry powder as of mid-2025—represents the structural opportunity driving private debt's expansion. As banks continue facing regulatory and economic constraints, private debt funds are positioned as the primary source of leverage for private equity acquisitions, fundamentally altering the relationship between sponsors, banks, and non-bank lenders across the leveraged finance ecosystem.
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