Investors will provide a private loan of $5.5 billion
Apollo and HPS provide a $5.5 billion private loan. Together with other firms, they are helping to acquire healthcare technology developer Cotiviti. The financing would be the largest in the market among buyouts arranged by private lending firms.
It could value Cotiviti at $15 billion. This amount includes a private loan. It should be noted that record financing is another factor in the declining importance of big investment banks. They are already playing a much smaller role in leveraged buyouts. This type of financing involves helping private companies with leveraged buyouts. In this case, the debt is sold to outside investors. This mechanism is considered profitable, but risky.
Some large banks have introduced this service to retain customers. But many companies prefer to use private investment firms.
The loan to Cotiviti would exceed the amount allocated in 2022 for the acquisition of Zendesk by almost $500 million, making this deal the second-largest amount of loan capital.
Cotiviti is owned by investment firm Veritas, which acquired the developer in 2018 for $4.9 billion. There are also plans to buy The Carlyle Group, which is currently owned by Veritas. Blackstone is expected to participate in the financing along with other lenders.
Private investment services are growing in popularity and are gradually taking the lead from traditional financial companies. The largest private investor is Ares Management, which manages $352 billion. Together with Apollo, HPS, and others, Ares Management specializes in alternative investments, which allows it to show stable profits in various market situations. In the last 5 years alone, Ares has more than tripled its assets.
The company’s lending business accounts for $214 billion. This division provides lending services to small businesses. Ares’ loans are tied to prime rates and interest payments are made on them. Despite its modest size, Ares’ clients include some 2,000 pension and insurance funds and institutional investors. Private investment firms focus on long-term investments. At the same time, they show excellent market-adjusted returns with a 5-year investment horizon. For example, as of September 2022, Ares’ five-year total return was 216%, compared to 56% for the S&P 500 Index.