En bref : Private credit has turned cautious on software buyouts, and the financing gap is reshaping how deals get done. Debt now covers 40% to 45% of the purchase price, down from a standard 60%, and Medallia’s handover to its lenders shows what happens when the cycle turns. Sponsors who price discipline into their structures, and who underwrite cash generation alongside growth, will keep transacting while others wait.
A financing gap opened in the asset class lenders loved most
For a decade, software was the favourite collateral of private credit. Recurring revenue, high retention and asset-light models made it the easiest leveraged buyout to underwrite. That preference has cooled. PitchBook reports that debt now often covers 40% to 45% of the purchase price on a software buyout, down from the 60% that prior years took for granted. The shortfall lands on the sponsor.
The slowdown shows in the volume. Around 17 billion US dollars of US software buyouts closed or were announced in the first five months of 2026, roughly half of the prior year’s pace and about 17% of the 99.2 billion dollars recorded in the same period of 2022. Some deal teams now describe a stark situation: full due diligence completed, terms agreed, and no committed lender at the table.
What changed in lender appetite
Three forces pushed the pullback. First, concentration risk: major managers including Blue Owl Capital, Blackstone, Apollo and HPS Investment Partners have scaled back new software loan originations as artificial intelligence (AI) raises questions about the durability of software earnings. Second, liquidity: business development companies facing redemption requests prefer to hold cash and sit out new software deals. Third, selectivity on quality: many lenders now require the borrower to post positive earnings before interest, taxes, depreciation and amortisation (EBITDA), which leaves unprofitable software-as-a-service (SaaS) companies on the outside.
Pricing reflects the new posture. Spreads have widened to 550 to 650 basis points over the benchmark rate, and in some cases stretch to 800, against a prior standard of 400 to 450. Capital has become both scarcer and dearer, and the terms attached to it tighter.
Medallia: the marquee warning
The clearest illustration sits in a single name. A group of private credit lenders led by Blackstone, Apollo and FS KKR is taking control of Medallia, the customer-experience software company, from Thoma Bravo in a recapitalisation. The lender group, which also includes Antares, HPS Investment Partners, Monroe Capital and Onex Credit, will inject 150 million dollars of new capital and reduce the outstanding debt, with closing expected before the end of 2026.
The arithmetic explains the caution everywhere else. Thoma Bravo acquired Medallia in 2021, at the height of the software boom, in a deal valued near 6.4 billion dollars and financed with roughly 2 billion dollars of debt structured as an annual recurring revenue loan. The recapitalisation wipes out the equity, crystallising a loss of around 5 billion dollars, in what observers call one of the biggest restructurings in the history of private credit. An entry multiple set in a hot market, paired with floating-rate debt, met higher rates and slower growth. The lenders now own the outcome.
How sponsors are bridging the gap
Dealmakers have responded with structure. A common approach splits the financing three ways: the buyer writes a larger equity cheque, the seller reinvests a slice of its proceeds back into the business, and limited partners contribute cash as preferred equity. The result keeps deals alive while lenders stay selective, and it shifts more of the risk and the upside onto the equity side of the table.
Each piece carries a cost. A bigger equity cheque lowers the return on a given outcome. Seller reinvestment depends on a seller who believes in the next chapter. Preferred equity sits ahead of common in the waterfall, so the headline price can mask a thinner economic position for the sponsor. These structures work, and they reward teams who model the full capital stack, every layer from senior debt to preferred to common.
What it means for mid-market dealmakers
For acquirers and owners across the Switzerland, Western Europe and United States corridor, the lesson travels well beyond large-cap software. Debt capacity has become a variable to negotiate from the first meeting, a term to settle early in the process and revisit through diligence. Cash generation now matters more than growth narratives, since lenders increasingly fund businesses that already cover their own interest. Entry discipline protects the downside, because a multiple set in optimism becomes the lender’s problem and then the sponsor’s loss when conditions shift.
The repricing also opens room for advisers and capital that can solve the structure. Deals with completed diligence and an absent lender represent value waiting for a bridge, whether through seller participation, preferred equity, or a more conservative entry that a cautious lender will back. The software buyout has lost the easy financing that defined the last cycle. The opportunity now belongs to the teams who underwrite the cash, price the risk, and build a capital stack that survives a surprise.
Références
- PitchBook. PE firms want software deals, but lenders don’t want to fund them, juin 2026. https://pitchbook.com/news/articles/pe-firms-want-software-deals-but-lenders-dont-want-to-fund-them
- PitchBook. Medallia taken over by private credit lender group led by Blackstone, juin 2026. https://pitchbook.com/news/articles/medallia-taken-over-by-private-credit-lender-group-led-by-blackstone
- Latham & Watkins. Latham Represents Blackstone, Apollo, KKR, and Term Loan Lenders in Medallia’s Recapitalization Agreement, juin 2026. https://www.lw.com/en/news/2026/06/Latham-Represents-Blackstone-Apollo-KKR-Term-Loan-Lenders-Medallia-Recapitalization-Agreement
- With Intelligence. Thoma Bravo hands Medallia to lenders in one of biggest private equity restructurings ever, juin 2026. https://www.withintelligence.com/insights/thoma-bravo-hands-medallia-to-lenders-in-one-of-biggest-private-equity-restructurings-ever/
