Preferred Equity in M&A: A 2-Company Case Study

The last 12 months clarified why preferred equity moved from niche to core in PE-led M&A. In 2025, private equity-backed M&A remained active across wealth management, tech, healthcare, and financial services; the financing playbook favored flexible structures. Private credit facilities and preferred equity tranches sit alongside traditional debt and equity, providing a way to bridge valuation gaps without unsustainable leverage. This is not about chasing yield; it targets risk management in volatile cash-flow environments.

Between January and September 2025, the wealth-management sector recorded 60 PE-backed M&A deals, including nine PE-backed firms closing their first acquisition after raises. The pattern signals two points: firms deploy capital quickly to establish or expand platforms; sponsors lean on structured capital to manage risk as rates remain higher for longer. Delayed-draw term loans and preferred equity layers attracted attention as debt markets tightened and traditional lending became more selective. This affects deal structuring, especially in advisory work where clients require clarity on structural seniority, returns, and downside protection.

From a numerical perspective, the market shows several signals. The largest reported tech deal in 2025 was Palo Alto Networks’ $25 billion purchase of CyberArk Software Ltd., a deal that reportedly did not rely on visible preferred equity in public disclosures but underscored the scale PE buyers chase in cybersecurity and software. Strategically, Bain Capital Private Equity’s $5.37 billion acquisition of YORK Holdings Co., Ltd in Japan highlights how structured equity can be layered to meet regulatory and risk constraints in cross-border deals. The YORK transaction likely included a preferred-equity component to bridge valuation gaps and manage local risk, aligning with the use of preferred instruments to support regulatory and currency considerations.

Tougher traditional lending conditions have increased private credit facilities as a funding backbone for PE-led M&A. Delayed-draw loans and layers of preferred equity provide flexibility when valuation is close but not aligned, and when lenders demand tighter covenants or higher rates. The typical coupon for preferred equity ranges from 8% to 14%; these instruments sit senior to common equity but junior to debt. In practice, preferred equity provides predictable returns to investors while preserving cash flow and enabling smoother integration. For sectors with volatile cash flows, tech, healthcare, financial services, this structure reduces risk that a post-close downturn derails the investment thesis.

There is also a signaling effect. Tariffs and geopolitical frictions created deal pauses, with about 30% of US dealmakers pausing or revisiting deals mid-2025, and buyers began favoring financing that could adapt quickly to shifting conditions. Preferred equity and private credit offer adaptability. The market does not show a broad PE M&A boom in 2025, but activity remains robust as many portfolio companies are past their sell-by date and require nuanced capital structures to unlock value. The cost of capital influences returns and exit pathways, a point often overlooked in quick transactions.

A practical thread runs through multiple deals this year. The Renasant Corporation and The First Bancshares merger, about $1.2B in April 2025, illustrates a mid-market bank deal where private capital structures aligned regulators’ expectations with the financing plan. The Transcarent acquisition of Accolade for $621M in April 2025 and PepsiCo’s $1.95B purchase of Poppi in 2025 show non-financial-services sectors also leaning on flexible capital. In these cases, preferred equity bridges timing gaps between regulatory approval cycles, operational integration plans, and capital cadence required to close a deal.

Further credibility comes from large fund activity. McKinsey’s data show global PE dry powder around $2.6 trillion in 2025, keeping sponsors hungry for opportunities amid macro headwinds. In Canada, CPP Investments took a new stake in Bunge after the 2024 Viterra deal, signaling continued appetite for structured equity in cross-border agriculture and value chains. In Japan, Bain Capital’s acquisition of YORK Holdings underscores how structured equity facilitates regulatory and risk-management requirements in advanced markets. These dynamics explain why preferred equity has become a staple for bridging valuation gaps and reducing leverage risk, according to McKinsey and other sources.

For practitioners, preferred equity is not a substitute for debt or common equity; it serves as a complementary layer. It aligns with investors seeking upside exposure and downside protection while allowing sponsor control through governance provisions and protective provisions tailored to regulatory concerns. In markets with volatile cash flows or uncertain integration outcomes, tech platforms, healthcare services, and financial services, the preferred layer provides a cushion during early post-close execution. The Bain Capital/YORK deal demonstrates this in practice: a mix of private equity and structured equity, with a preferred layer to satisfy Japanese regulatory and risk considerations while preserving value for exit.

Practitioner sstandpoint: design terms to minimize value erosion during integration. That means explicit coupon steps, capital-structure waterfalls preserving downside protection for preferred holders, and clear dilution mechanics if the sponsor must raise more capital before profitability milestones are met. Since 2025 saw a 15% year-over-year rise in preferred equity issuance in the first half, deal teams should stress-test structures against sensitivity scenarios: interest-rate moves, regulatory delays, and slower top-line growth post-close. Details drive value: side letters, covenants, and governance rights.

Preferred-equity investment in M&A remains a practical instrument for bridging valuation gaps and controlling leverage risk in a high-rate environment. The mix of private credit, delayed-draw facilities, and preferred equity helps sponsors execute transactions that would not clear debt covenants or valuation hurdles. The Bain Capital/YORK case anchors the narrative: structured equity can cross cross-border regulatory and risk gates while enabling a disciplined exit path. It is a trend with staying power, not a short-term fluke.

Practical notes: map financing options early, analyze whether preferred equity fits risk tolerance and valuation targets, and defend the choice with data-backed scenarios. Follow deal examples from Bain Capital, Sycamore, and others to understand term-sheet evolution. If you want deeper terms and templates, consult the Matactic glossary and enroll in the free M&A course to stay current with preferred-equity mechanics, governance, and structuring. What’s next? Track integration milestones in Bain Capital’s YORK Holdings case and monitor private credit facilities and preferred-equity tranches in markets with tariff or regulatory frictions. We will break down these structures with real-world examples and practical templates. Stay tuned for more practical insights on preferred equity and other advanced M&A terms. If you want more, sign up for the free M&A course and read Matactic for term-by-term clarity. There is much to learn (but we will get you there).