JP Morgan sign

Private financing is moving to the next stage of the cycle and we think it portends a refresh in pricing.   We’ve spoken in the past about the creativity of private equity firms and the current imbalance in the need for capital vs the capital that is currently being deployed.  As we read stories about NAV financing and private debt as methods to hold up valuations, we can’t help but think the banking crisis is more than spilling into private assets values .

As interest rates have gone up, and the banking crisis has unfolded, the end of easy access to money has made “doing a deal” a far more difficult activity.  As part of PE’s creativity, in some cases, private equity companies borrow against the net asset value (NAV) of their fund to access liquidity. 

Frankly, it’s a tool no one wants to use.  It’s expensive and if things go wrong, it’s penal.  But none the less, as things tightened at the end of 2022, the incidence of NAV financing increased significantly.  Generally this is a last gasp for companies ahead of a down round and this might be the time for prices to finally adjust.  

So why now?  Why not in 22?  Why adjust at all?  We just lost Silicon Valley Bank, a known promoter of ever higher valuations through loose lending practices and First Republic, the next largest independent bank for VC/PE is now part of JP Morgan. 

While JP Morgan’s entry into this area is fascinating, Jamie Dimon and his team are very likely to take it slow and figure out the market before opening the spigot to those customers.  Liquidity will be tough, lending standards will be tougher and there will be fewer bidders for each asset that comes to market.  We’ve said it before and we’ll say it again, 2023 will be an interesting vintage….will 2024 be even better?

Source: Pitchbook, Pitchbook, Pitchbook


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