Debt transactions with alternative lenders almost double year on year

Alternative lenders increasingly target Western Europe

Alternative non-bank lenders recorded 34 deals in the UK and Europe for the first quarter of this year, compared to 18 in the first quarter of 2013. This equates to a year on year increase of 89% in deal volume, according to the Alternative Lender Deal Tracker* from Deloitte, the business advisory firm. This increase divides into 50% in the UK and 120% for the rest of Europe in the first quarter.

The UK also remains the largest market for alternative lenders, with 47% of these transactions, followed by 25% in France and 11% in Germany.

Fenton Burgin, head of UK Debt Advisory at Deloitte, comments: “We expect year on year increases to continue, reflecting a move towards a US model in the European mid-market. In the US, banks finance less than a fifth of mid-market business capital; in Europe, over the last five years, we operated a full 180 degrees from this scenario, with banks providing the majority of debt capital.

“The transformation from a bank driven model to one dominated by funds in the US accelerated in the late ’90’s but took over 15 years to reach current levels. The pace of change in Europe will be far more rapid, driven by a combination of ultra-low interest rates combined with high levels of newly raised institutional capital keen for mid-market investment opportunities.”

Burgin continues: “With a number of the larger alternative lenders in 2014 being able to raise debt against their equity, they are now able to provide non-amortising ‘term loan B’ debt structures at very close to bank debt pricing. Meanwhile, unitranche funding remains significant combining senior and subordinated debt into one instrument. The unitranche structure was dominant in 44% of deals in the UK, while used in 37% of European deals, over the past six quarters.

“Supercharged debt markets fuelled by institutional, non-bank liquidity, combined with low European M&A volumes mean non-bank lenders are very incentivised to deploy capital. On the back of our analysis, we envisage that alternative lenders will play an increasingly important part in the mid-market, providing what many borrowers will see as a compelling proposition.”

End

Notes to editors

*and related research

Deloitte’s Alternative Lender Deal Tracker compiles data and information on a confidential basis from over 33 subscribing, leading alternative lenders. Deloitte tracks primary mid-market deals across Europe with up to €350m of debt. On a quarterly basis, full data is provided to all subscribers and a summary report provided to market participants highlighting key market trends and developments.

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