Deal activity remains subdued as asset valuations fall and sponsor-backed M&A stalls
The second half of 2022 saw 345 deals completed with 1651 wrapped up in Q4. This reflects a quarterly 8.3%1 drop-off compared to Q3 and a semi-annual decline of 14.8% when compared to H1. Despite the wider economic environment’s best-efforts to disrupt the private debt market, 2022 deal activity only slightly lagged behind 2021, once again reflecting a busy start to the year and the asset class’s relative resilience in the face of adverse macroeconomic conditions.

French deal activity overtakes the UK for the first time in more-than five years
H2 2022 saw France temporarily claim the crown as Europe’s leading jurisdiction for private debt deal-making, accounting for 28.1% of total transactions. On an annual basis, French deals rose by 31.9%, with German activity falling by 5.7% and UK activity falling by 24.0%. Comparing H1 to H2 reveals that the geographic shift in capital allocation has primarily arisen off the back of the French market showing resilience in the face of wider economic challenges. Quarterly deal count over the past 12 months has been very consistent in France whereas other geographies, such as the UK and Germany, have seen a notable drop-off in H2.

TMT comes out on top again as the most popular sector for deal activity
For the third year running, TMT pipped Business, Infrastructure & Professional Services and Healthcare & Life Sciences to the title of ‘most popular sector’ for European private debt activity, accounting for 22.8% of all deals. This trend is consistent in the UK and France, with TMT accounting for 23.4% and 18.0% respectively followed by Business, Infrastructure & Professional Services at 23.0% and 17.5%. As the market continues to evolve through the downcycle, it is likely that assets in industries underpinned by healthy profitability and stable cashflow generation will continue to be the primary area of lender focus. Resilient growth sub-sectors with temporarily undervalued assets, such as branches of Healthcare & Life Sciences, are likely to lead the charge.

Uptick in buyer and vendor valuation mismatches drives an increase in number of collapsed mid-market sales processes
Leveraged Buyouts and Bolt-On M&A continue to account for the majority of deals, however, dropped by over 11.3% on an absolute basis between H1 and H2 2022, and by 12.1% between Q3 and Q4 2022. Early signs suggest that deal activity might start to pick up again moving into 2023, however, the market will likely take several months to adjust to stabilising macro conditions before M&A activity picks up pace.

1 On a like-for-like basis (i.e., by adjusting the deal count to reflect the same population of Lender respondents from the immediate prior quarter), these figures would respectively be: 150 and 8.0%.