Number of debt transactions with alternative lenders up 14% year on year as M&A booms
18 December 2015
Non-bank lenders recorded 173 deals in the UK and mainland Europe during the first three quarters of 2015, up 14% on the 152 deals for the same period last year. Of the 61 deals within the third quarter, half (29) were in the UK, according to the Alternative Lender Deal Tracker from Deloitte. This comes as European-based fund managers hold €38bn of dry powder capital ready to deploy in direct lending deals.
Fenton Burgin, Head of UK Debt Advisory at Deloitte, commented: “Against a backdrop of more volatile capital markets, direct lending has really changed up a gear in the past six months, as new market entrants launch direct lending strategies. Importantly, a number of the larger European direct lending funds have returned to investors and raised materially larger amounts of capital to secure new €2-3 billion funds. Today, at least four European direct lenders can now underwrite commitments of up to €300m on single companies and thereby, for the first time, provide a genuinely viable alternative to the high yield or CLO markets.
“Looking ahead, we expect direct lending funds to increasingly compete with capital market structures in the upper mid-market, as they are able to raise cheaper capital from investors. Additionally, some borrowers are willing to pay a premium for the flexible terms provided by a direct lending solution.”
Floris Hovingh, Head of Alternative Lender Coverage at Deloitte, added: “There are two distinct activities here, the first being funds competing against banks on mainstream LBO deals with higher leverage and more flexibility. The second more risk tolerant group of funds addresses an interesting part of the market which is shunned by banks. These tend to be in more complex situations, such as businesses with a short track record, assets in more difficult sectors or where there is regulatory or jurisdictional risk. This group of funds often provide a genuine capital solution previously not available.”
Additionally, according to the tracker, over the last 12 months half of transactions involved M&A as their deal purpose in the UK. TMT was the biggest sector using alternative finance in the UK (23% of deals), while in the rest of Europe it was consumer goods (22%).
Hovingh concluded: “It’s not surprising the TMT sector is turning to alternative finance to fund rapidly growing businesses and consolidation in the sector. Other sectors where bank lending has been under pressure are retail, manufacturing, consumer goods, construction, life sciences, and financial and legal services firms. In short, the versatility that alternative lenders can provide is the key to their success.”
Notes to editors
Deloitte’s Alternative Lender Deal Tracker compiles data and information on a confidential basis from over 38 subscribing, leading alternative lenders. The deal tracker covers a total of 546 transactions since the fourth quarter of 2012. Deloitte tracks primary mid-market direct lending deals across Europe. 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.
In this press release references to Deloitte are references to Deloitte LLP, which is among the country's leading professional services firms.
Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, whose member firms are legally separate and independent entities. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.
Deloitte debt advisory provides independent advice to borrowers across the full spectrum of debt markets through our global network of 140 debt professionals in 30 countries. Deloitte debt advisory is the market leader for UK mid-market alternative lender transactions, having advised on over 30 alternative lender transactions in UK since 2012.
The information contained in this press release is correct at the time of going to press.
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