Davis Polk partner and Finance practice head Jason Kyrwood was quoted in Octus’ Americas Private Credit Review discussing the current market and the attraction of carve-out deals to private credit dealmakers.

The article noted that tariff policies and elevated interest rates have led to a sluggish market, evidenced by a drop in sponsor-to-sponsor transactions. “With tariffs complicating portfolio company valuations, sponsors want to sell - but many are not willing to do so at today’s pricing,” Jason said.

“Pure take-privates are one option, but equity valuations remain relatively robust,” Jason said, adding that it is no surprise carve-outs and strategic deals are on the rise as investors search for ways to deploy capital.

“By companies selling off a part of their business, either a full unit or a minority stake, dealmakers can unlock value for both sides, even in tougher parts of the credit cycle, so these types of transactions continue to be attractive,” Jason noted. “When it comes to financing carve-out deals that if the business is a stand-alone segment with several years of audited financials, it can be easily placed in the syndicated market. But for more complex structures, direct lenders are often better suited.”

“It gets harder when you have to untangle businesses and don’t have historical financials for syndication and ratings,” he said. “Then the direct market is often an easier place to start and, at the right time, you can re-syndicate to the syndicated market.”

Looking forward, the EY Parthenon report projects flat corporate M&A volumes for 2025 and private equity deal volume growth of roughly 1%.

“I think there’s a certain baseline level of activity that will keep us active, but the tsunami of deals we were bracing for has not materialized, and it is anyone’s guess at this point when that will change, though we are confident it will,” Jason said.

“Carve-Outs Gain Stream as Tariffs and Rates Curb Sponsor-Backed M&A Momentum,” Octus (June 13, 2025) 

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