This issue covers data for the second half of 2020 and includes 232 Alternative Lender deals. While this represents a 52% increase in the number of deals from H1 2020, there was a 25% decrease from H2 2019. This edition also features some commentary on the Irish market, beginning on page 2.

Key findings - Spring 2021

Ireland 

• Notwithstanding the challenging backdrop brought about by the Covid-19 pandemic, we are seeing a resurgence of activity in the private debt market in Ireland in recent months. This is primarily attributable to a robust level of M&A activity, coupled with an improving outlook for corporates.
• The increasing number of private equity transactions, and specifically those involving UK firms, has attracted a growing number of UK-based alternative lenders into the Irish market. That said, domestic banks and alternative lenders continue to feature strongly as evidenced herein.

• In general, competitive processes and strong valuations have led to the growing influence of alternative lenders as a source of acquisition financing. More recently, we have noted an increased level of activity amongst non-sponsor backed businesses. While this is specifically in the context of bolt-on acquisitions, capital investment programmes targeting increased capacity and/or production capabilities have also been prevalent.

• The pro-active response by the Irish Government and provision of various support schemes has undoubtedly safeguarded the financial standing of many businesses. That said, there is increasing acknowledgment that the true extent of the pandemic is likely to be experienced as the economy re-emerges from Covid-19, state supports are curtailed and creditors begin pursuing debts that have mounted since March of last year.

• Businesses that have traditionally been conservative from a debt perspective may eventually find themselves in leveraged positions beyond that of traditional bank debt appetite with hard drawings on working capital facilities or other short term facilities. Furthermore, the recent announcement by NatWest to withdraw Ulster Bank from the Irish market will lead to reduced competition for corporate banking facilities and provide for additional opportunities amongst the remaining banks and alternative lenders.

European market

• Across Europe, there were 232 direct lender deals in H2-20. This marked a decrease of 80 deals (26%) from the previous year’s 311 deals in H2-19. Most of this decline occurred in a particularly weak Q3 in which there were only 77 deals, less than 50% of the 159 seen in Q3-19. However, after three consecutive quarters of declining numbers, European direct lending activity surged in Q4, driving up the number of deals to 155 – the highest ever recorded in a fourth quarter and a 2% increase over previous year’s Q4 record.

• This was the second-highest quarterly deal flow ever (behind Q3-19), with 20% more deals completed in Q4-20 than in Q2-20 and Q3-20 combined – as a result, H2-20 overall saw only 3% fewer deals completed in the UK than in the same period in 2019, and only 18% fewer in Germany, suggesting resilience in some of the key markets. However, the number of deals in France fell by 57%, and by 26% in the rest of Europe.

• Analysing deals by purpose, growth capital deals saw the biggest decline in percentage volume in H2-20 compared to the same period in 2019, of 53%. The second-biggest fall was in refinancings with 43% fewer deals, followed by dividend recaps with 23%, LBOs with 22%, and bolt-on M&A with 13% fewer.

• Business, Infrastructure & Professional Services (BIPS), Technology, Media & Telecommunications (TMT), and Financial Services continued to dominate the direct lending market in H2-20, accounting for nearly 65% of total deals in the past six months.