This issue covers data for the first half of 2023 and includes 256 new private debt deals. This represents a 36% decrease in the number of deals from H1 2022, and a 26% decrease from H2 2022.

Introduction

Our Spring report struck a bearish tone on how we expected 2023 to shake out; further interest rate rises, a weak M&A market, and investor overexposure to private markets all likely to culminate in pressure on liquidity throughout the value chain. Deal values reported to us by our 76 contributors in the six-month period to June 2023 were certainly reflective of that, with 256 deals comparing to 401 in the equivalent period to June 2022, a 36% reduction
overall. Whilst we await September month-end to begin collecting Q3 data, it feels unlikely that this trend will reverse, with the period traditionally marking a slower quarter due to the European summer holiday season. With a number of books prepared for release in September, Q4 has the potential to be busy, but it’s unlikely that it can reverse what has been a poor year-to-date. Deals are also taking longer than they have traditionally – financing, for the most part, is tougher to arrange and investors are generally spending longer periods of time on diligence, so there is also the potential for some Q4 spillover into Q1 2024.

This is largely consistent across a range of other economic datapoints. Whilst inflation fell from a peak of 11.1% to 6.8% in July, and with an expectation that it is likely to only fall below 3.0% by next summer, the general macro picture is not particularly rosy. Europe's growth is weak, China’s recovery has stalled, and oil prices have risen almost 20% in the last three months. The timeliest measure of economic activity, the purchasing managers' survey, suggests that after a second-quarter bounce, activity in the US and Europe flagged in June and July. The UK slowdown is most apparent in the housing market, with Nationwide reporting at the start of September that house prices fell by 5.3% over the last year. Similarly, the Financial Times reported the value of UKresidential mortgages in arrears jumped in the three months to June to their highest level in seven years. Outstanding balances in arrears — borrowers failing to make payments equal to at least 1.5% of the outstanding balance, or where the property is in possession — increased by 28.8% compared with the same period last year, to £16.9bn, the highest since the third quarter of 2016.

Key Findings - Autumn 2023

M&A remains the key driver for private debt deals following a notable increase in bolt-ons

The majority of deals remain M&A focused, with 69.5% of activity revolving around an acquisition. Of the 600 deals in the last 12 months, only 75 did not involve a private equity sponsored asset.

The UK still leads as the main source of deal volume for private debt lenders in Europe

However, its prevalence has slowly declined over time following stiff competition for new opportunities in other European jurisdictions.
 

Total deals across industries (Last 12 months)

Within the UK, the Business, Infrastructure & Professional Services and TMT industries have predominantly been the dominant adopters of private debt solutions. Across the rest of Europe, private debt has typically been concentrated across four industries: TMT, Business, Infrastructure & Professional Services, Healthcare & Life Sciences and Financial Services.