Medallia, a company focused on software services, last month agreed to be bought by Thoma Bravo for $6.4 billion in cash. The deal put the debt component of the purchase price at less than 30% of the value of the company.
Unlike some of the recent jumbo unitranches that have recently hit the market, the Medallia loan may have faced some resistance if bankers had attempted to raise the funding in the syndicated leveraged loan market. While the firm has seen double-digit revenue growth, it has been bleeding cash. For the last 12 months ended April 30, the company reported EBITDA of about negative $85 million.
Investors looking for higher yields are once again shoveling record amounts of cash into private lending, catapulting the asset class to more than $1 trillion globally. With that growth comes the ability to write larger checks, sometimes running above $1 billion. Another component boosting deal sizes is private equity firms increasingly turning to unitranche loans to fund larger buyouts.
As unitranches have been surging to become one of the hottest parts of the direct-lending market, deal volume has jumped to $21.6 billion in the second quarter, compared with roughly $3 billion during the same period five years ago, according to data from Refinitiv. Unitranche and first-lien loans represented 87% of all private credit deals in 2020, while lower-ranked mezzanine debt declined from 21% in 2013 to 1%, according to law firm Proskauer in its annual private credit insight report.
Last month, the largest unitranche on record hit the market — $2.6 billion of debt financing to help fund Thoma Bravo's buyout of Stamps.com Inc. Blackstone, Ares Management, and PSP Investments and the lending unit of Thoma Bravo provided the loan.
Blackstone along with three other lenders last month also provided a $2.15 billion unitranche for Veritas Capital's recapitalization of online education and testing company Cambium Learning Group.
