NEW YORK, March 16 ― Bain Capital's co-managing partner, John Connaughton, told Reuters yesterday that the fallout from SVB Financial Group's collapse will weigh on banks that have already retrenched from lending.
Connaughton said private equity firms like Bain have been turning to peers with direct lending arms to secure debt for deals because traditional bank financing has become scarcer as banks adjust to the quick rise in interest rates. This is despite debt from direct lenders being significantly more expensive than bank financing.
While the banking sector is strong enough to withstand SVB's failure, the lender's collapse will add to the caution that banks have been showing, Connaughton said in a Reuters Newsmaker interview.
“The questions that are getting raised about Silicon Valley Bank are, 'Where is the liability and asset matching ... Where does that all sit and what liquidity concerns are out there?'” Connaughton said.
Connaughton said the cost of typical debt financing for private equity firms doing deals had jumped from between 5 per cent and 6 per cent to between 8 per cent and 10 per cent, while equity checks had also jumped.
He added that Bain's return expectations on deals remained the same, partly because earnings at its portfolio of companies grew by 15 per cent last year.
“Unlike the public market, which increasingly paid a higher and higher price, we did pay some higher prices, but when we underwrote a deal, we underwrote it to a five-year plan where exit multiples will normalise,” Connaughton said.
Founded in 1984, Boston-based Bain Capital has grown into one of the world's largest investment firms with more than US$160 billion (RM717 billion) in assets under management spread across private equity, credit, real estate, venture capital, life sciences and cryptocurrency and blockchain investments. ― Reuters
