A message from Octus: Volatility rattled headlines. Spreads rewarded lenders anyway.
Private credit had a rough second quarter for headlines. Geopolitical noise, BDC redemptions, AI disruption fears, an M&A market stuck in neutral. Still, none of it stopped spreads from working in lenders' favor.
Octus just dropped its latest Data Drop, and the read is simple: volatility widened spreads and cooled leverage across the board, which means better risk-adjusted returns no matter what size deal you're underwriting.
The numbers back it up. Lower middle market spreads per unit of leverage rose 6% quarter over quarter to 145 bps. Upper middle market widened 4% to 112 bps per turn of leverage. Large-cap moved the most, up 8% to 98 bps.
Three segments, three different starting points, same direction of travel.
That's the setup lenders want heading into the back half of the year: get paid more for the same risk. For the full picture, top down across deal size and stacked against other asset classes on spread, leverage and pricing, grab Octus' latest US Direct Lending Analytics report.
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Okay, now let’s get into it:
A Big Problem Facing Private Equity Exits:
Something has been on my mind lately. It’s about how bad the performance of Private Equity backed companies that go public are.
I’ve been thinking about my previous investing universe and looking public equities tank 90%. I figured I should dig into how PE-backed IPOs have gone since the late 2010s and I was honestly shocked by the findings.
Before we dive right in - it’s important to remember there’s really only 3 paths for Sponsors to exit - 1) Sell to another Sponsor 2) Sell to a Strategic or 3) go public.
When evaluating HY equities, I felt like I was continuously looking at PE-backed companies entering the public markets with an EV/EBITDA at least 2-3x points higher than it should be (if not more), at an inflated EBITDA, and then things came crashing down?
Why did these names crash?
The multiples element I brought up - the stock was too expensive to begin with
side effects of high leverage - one of the things I’ve been writing about for a while is eventually the medium-term cost-cutting decisions that PE makes in service businesses eventually catch up and create long-term business issues
The overall GDP grower story at a potentially subscale level just isn’t compelling for the public markets. Many companies make great PE-backed stories…but not great public market stories.
Let’s start with the good news before I floor you with the bad news.
The success stories:
With the help of my AI Analysts (Claude and ChatGPT), I took a look at 85 PE-backed U.S. IPOs (or direct listings or SPACs) that have occurred since 2018. There were 19 that I would call “winners”.
BJ’s Wholesale: This was actually one of my first pitches. It was a pretty levered player but I saw a pretty clear path for an upgrade as it went public + underlying tailwinds to drive unit and earnings growth. Also a good lesson that L+300 or whatever the spread was a worse trade than the 468% the equity has grown since the IPO. Good thing I get paid to take equity risk now instead of credit risk. As one of my first pitches, it was definitely green, but I was fucking right so I’m going to be vindictive about it here now. Wild to see at the top of the list.
BrightSpring Health provides nurses, caregivers and other specialized services to those who need ongoing medical or daily living assistance within their home, as opposed to the hospital. As someone who has seen hospice care a couple of times, it makes sense why this is a growing space as opposed to nursing home/retirement community oriented care. With U.S. demographics where they are, and healthcare services employment growing, it makes sense why there’s been robust revenue and earnings growth.
Vikings Holdings - to be fair, this is still family owned, but TPG and CPPIB hold minority stakes. This travel and cruise line has done quite well because of affluent retirees spending their money to go travel the world.
Dutch Bros - they saw a lot of growth from a minority investment from TSG Consumer to help the drive-through coffee chain expand across the US. The stock has zig zagged a ton over the past couple of years, but has overall done okay.
An example Dutch Bros location
I built a tracker with 85 names that covers it - here’s the big winners below. Like I said, there’s 19 “winners” - but then things get really mixed from here.
The Dutch bros equity brings up a great point - sometimes these stocks have a great run but then crash and burn. Chewy is the best example. It was priced at $22/share back in 2019, rose to a high of $118 in 2021, and then fell to today’s level of…..$24/share. A 9% return and actually a negative story given the IPO started trading at $30. While I love the humanization of a pet thesis and have historically traded Petco quite well, the thesis became “too hard” for my PA because shelter rates and adoption took a worse turn as people went back to the office. “You only adopt a pet once”, and ppl moved towards prioritizing vet care over the more discretionary and higher-ticket items. Petco and Petsmart had some incredible numbers in the early 2020s before eventually cooling quite rapidly.
On the bigger tests of this is going to be Jersey Mike’s. It’s hovering around its IPO price ($23) going public at a $7.3B valuation just under two years after being sold to Blackstone for $8Billion. Somewhat odd it went public around where it got bought just 18 months ago right? Well that’s because they were initially targeting a $12B+ valuation and had to dial back expectations.
The Bad News? Public Investors have lost billions on PE 💩
This might be a shocker, but slower-grower, mature, and semi-overlevered equity stories have not been well received by the public equity markets.
Here’s the breakdown with my list - of the 85 companies, 50 have lost $$ relative to where they were priced for an IPO. That’s 58.8% of this dataset. In terms of being down -20% or more, 39 names fit that criteria: 45.8% of the list.
Yeah, 45.8% of private equity IPOs since 2018 trade -20% or worse below where it priced.
But for many, the performance is far worse. Here’s some of the bigger underperformers:
One of the initial success stories that went south fast was Bumble. I remember it coming to the market back in early 2020 and for a while it was a pretty successful hold. It went back public in early 2021 at a $8.2B valuation and then surged materially to a $13B+ on its first day of trading! Back during covid, IRL dating was almost nonexistent and awkward given the pandemic so everyone turned to the dating apps.
Bumble got totally smacked though. Online dating crashed as in-person activities resumed and as its business model was deeply inferior to Hinge. After an initial surge, the idea of women making the first move didn’t make a lot of sense and Bumble found itself as a niche platform bleeding users. Funny enough last week, Bumble finally announced they’re going to let men message first too because the matching model stopped working due to Gen Z shyness.
Let’s get into some more ugly stories though:
The Bad Stories:
Leslie’s, a pool retailer backed by L Catterton, is nearing bankruptcy after spiraling out of control the past few years. It’s down 99% and after a period of overbuying for pool supplies in person, corresponding headwinds and the move to online have decimated the business.
Joann Fabrics went public at a market cap of $495mm at $12/share (below the target of $15 to $17) - this fabrics and crafts retailer has since been liquidated, closing stores and selling off assets in mid last year. Leonard Green was the sponsor. It was the largest retail liquidation by square footage in US history, with 790 stores in 49 states.
Petco and Bumble were names I already mentioned. $WOOF ( ▲ 0.36% ) is -90% off its highs and $BMBL ( ▼ 3.17% ) is -96% off its highs.
Kindercare and McGraw Hill are some other IPOs that did not go well at all. $KLC ( ▼ 1.97% ) is an early education learning center platform that’s -87% off where it went public. It was a bit of a roll-up & greenfield strategy with backing from Partners Group. It had some confusion around it re: one-time benefits that would roll off but overall a credit you got paid to hold that looked good in the secondary.
McGraw Hill has faired a lot better only off -22% from where $MH ( 0.0% ) went public. McGraw Hill is Platinum Equity backed, buying for $4.5B from Apollo back in mid 2021. Given there was previously a sponsor to sponsor deal, going public or selling a strategic were only the two routes. No way they could go sponsor to sponsor again right?
Stubhub $STUB ( ▼ 3.38% ) got quite ugly after 2Q earnings last Wednesday. It’s now down -70% from where it went public. Stubhub facilitates buying and selling event tickets sure, but it’s a service where consumers constantly think they’re getting a raw deal or getting scammed. As a result, that creates a lot of reputational and damage control servicing. That coupled with the discretionary nature of the business makes it a harder sell for the public equity markets. Clearly, it had gone quite well in the private markets, but once it entered the public domain again, it has struggled. viagogo acquired Stubhub from eBay for $4B in early 2020 (right before the world was about to change) and steadily grew the business. Stubhub priced its IPO at $23.50/share in September 2025, valuing the company at $8.6 Billion. The enterprise value now is $2.43B.
Vivid Seats - my Stubhub example is nothing compared to the fact that $SEAT ( ▼ 5.7% ) is -97% from its high and has a measly $78mm market cap. As a less visited ticket reseller, Vivid quickly lost their positioning relative to intense competitors and racked up steep losses. Todd Boehly’s SPAC took this public at a ~$2B back in 2021…another sign of the excessive exuberance we had that year. This was a nice increase from when Vista got in at $850mm in 2016 (GTCR later got involved too) but damn:
Some of these names got saved:
Some of these names were spiraling a bit but were “saved” with yet another take private.
Mister Car Wash - this is a good example. Initially a Leonard Green LBO. The car wash platform received too high of a platform multiple and de-rated as people realized this is a discretionary, four-walled-constrained business. Initially, the car wash empire went public at $15/share or a $5.6B valuation in mid 2021. Mister Car Wash was taken private for $3.1B ($7/share) by….you guessed it - Leonard Green earlier this year. Normally Sponsors just stop supporting businesses, so clearly the Sponsor still sees value in the business that makes another ride private worthwhile.
Giphy
Dun & Bradstreet went public for around $9b in 2020, just a year or so after being taken private for $6.9B by CC Capital, Cannae Holdings, and Thomas H. Lee. In 2025, the company was taken private again, this time by the legendary Clearlake Capital Group for $7.7 Billion.
Clearwater Analytics went public in 2021 after a few years of PE backing from WCAS and minority investments from Permira and Warburg Pincus. Permira and Warburg Pincus ended up leading a group to take the company private again in 2026 at an $8.4B valuation.
“Hold forever assets” should be on the rise:
You heard me talk about this last time when breaking down Thrive Eternal. The goal of these funds are to hold onto these assets in perpetuity. You can read that newsletter if you missed it here.
ServPro, a fire and water cleanup & restoration franchise - is a long-term play by Blackstone, for example. Acquired for $1B+ back in 2019, and is in their core private equity portfolio, which is built for holding periods of up to 10-15 years instead of the standard 5-7 year hold.
The tailwinds in this type of business are pretty obvious, and arguably building a platform with a longer investment horizon probably creates more value long-term. It’s not in the leveraged loans/bond market, and quickly became a WBS.
While this is just one example that comes to mind, I wrote in depth last month about how a long-term investment horizon is going to be the way to go for more folks. Ultimately, assets are trading too quickly with too much “get rich quick” fixes that erode after a couple Sponsor-to-Sponsor deals or an examination from skeptical public equity investors.
Looking at these IPO performances, the public markets are clearly telling Sponsors to get their act together. “Dumping” a former LBO in the public markets might make it harder for you to get an invite back.
Concluding thoughts: What do Sponsors do?
Look for strategic home runs: SRS Distribution was a success. Not only was it a rich sale, but there were a lot of dividends taken along the way. Assets like SRS which rapidly grow, allow for divy recaps, AND to get a strategic buyout is a homerun outcome.
Hold “Sponsor to Sponsor” type assets for longer and do CVs. This is being met with “Super Carry” which is an interesting concept to create alignment. With rates and transactions where they are, this holding pattern probably continues.
Idk, go public with better deals? That’s a novel thought right. Ultimately, the public markets were unimpressed with many of these companies and the performance didn’t back up the multiples. PE needs to look at the mirror if they want the public markets to be a viable channel for scaled companies to exit.
Anyone tied to the AI wave will probably get a bid in the public markets. Everyone else? Maybe it’s a harder story to justify.
Until next time.
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