Deal activity maintains steady momentum into second half of 2024 following a rampant Q2
Despite European volumes dipping slightly from the Q2 high of 2651 deals, private debt activity remained strong in Q3 with 204 deals completed. This reflects a 42%2 increase compared to Q3 2023 and a 13%3 compared to Q3 2022. On a YTD basis, lenders have completed 592 deals, 46% more than the equivalent period in 2023 and marginally ahead of the same period in 2022 (579 deals).

At the upper end of the market, at-least 42 of the deals in 2024 YTD have exceeded €300m – suggesting that, even despite a resurgence in public markets at the start of the year, private debt as a product continues to remain attractive to borrowers.

Several factors are contributing to a more fertile backdrop for private debt deal-making, most notably increased visibility around future interest rate cuts and pent-up demand from institutional investors to recycle capital to LPs and deploy new dry powder. The European M&A landscape is slowly-but-surely becoming more buoyant, suggesting that activity levels are not only in the process of rebounding, but also beginning to normalise at sustainable levels.

Activity levels continue to recover across the board, with most jurisdictions experiencing a return to 2022 deal-making levels
YTD activity has remained resilient across most European jurisdictions and is on track to comfortably surpass 2023 levels and return to volumes previously seen in 2022. In the UK, for example, YTD activity (171 deals) is up 75% vs. the equivalent period in 2023 and on par with 2022 (169 deals). France continues to trail the UK with respect to total deal activity, with 139 deals completed YTD, 18% above the equivalent period in 2023 and on par with 2022 (142 deals).

The same trends were observed across both Benelux (69 deals YTD) and the Nordics (44 deals YTD), up 37% and 47% respectively on equivalent period 2023 and closely-aligned to 2022 activity levels. By way of contrast, deal activity in the German market has not bounced back as dynamically – despite being up 35% vs. prior year, it is still down 20% vs. 2022 YTD.

Pricing continues to slide as competitive tension heightens, but risk appetite remains measured
TMT (25%), Business Services (23%), Healthcare & Life Sciences (14%) and Financial Services (11%) continued to prevail as the leading industries in YTD 2024, accounting for 73% of deals. Pricing across these assets has continued to taper – as of LTM Sep-24, 34% of deals were priced at less-than-or-equal-to 6% margin compared to 26% in LTM Sep-23.

As base rates continue to subside, early indications suggest that there is still hesitancy with respect to the debt serviceability of assets coming to the market. The general sentiment suggests that, despite the market witnessing intense price competition for a handful of top-quality assets, a number of investment opportunities continue to be more nuanced and command more risk aversion from lenders.

Coupled with this observation has been an increase in the propensity for lenders to participate in club deals – 12.5% of deals in the YTD period (vs. 9.3% five-year average from 2019-2023) have been underpinned by clubs, highlighting an increasing tendency from lenders to diversify risk and seek safety in numbers amidst an evolving economic landscape. From the borrower’s perspective, this helps to derisk their own position by diversifying funding sources in order to ensure future additional capacity, instead of being beholden to one lender.

M&A activity remains steady, as new LBOs continue to gradually overtake bolt-on acquisitions
LBO volumes have continued to remain strong, with a second consecutive quarter of 75+ new deals. By way of comparison, the number of LBOs YTD (211) has already comfortably exceeded the equivalent quantity in calendar year 2023 (196). As a proportion of total deals, LBOs (36% YTD) have re-overtaken bolt-on acquisitions (35%) for the first time in over 12 months, and are on track to return to 2021/22 levels of c.40% of all deals.

As touted in the previous publication, an increase in LBO activity across European markets was expected to slightly lag the UK market and this effect is now beginning to bear fruit. Indeed, as a percentage of non-UK deals, LBOs increased from 32% to 41% quarter-on-quarter. By way of contrast, the UK took a step backwards in Q3, with 16 new LBOs (vs. 24 in Q2). This is likely to be a function of the introduction of a new Labour Government and awaiting the outcome of the Autumn Budget.

In the ten years we have been tracking alternative lending, one of the most remarkable observations has been the speed at which it has grown. Since 2012 the asset class has grown in Europe from $36.2bn of AUM to $187bn today. The number of lenders we collaborate with for this publication has grown from 20 to 82. The headcount in the direct lending market has more than doubled since 2016. In the space of a decade the alternative lending market has grown to be more than just a niche subcategory of a larger fixed income/alternatives strategy, to an asset class of its own right.

In our Spring 2022 edition of the Alternative Lender Deal Tracker, we questioned whether it may be time to refresh the title of this publication given that non-bank lending makes up an estimated 80% of mid-market deals. We had to ask ourselves “Is ‘alternative lending’ really that alternative?”

Now, as we finish celebrating ten years of the Alternative Lender Deal Tracker, we are happy to announce that we are renaming our publication to the Private Debt Deal Tracker. There are many ways in which the field is still growing and developing and there is a long way to go on the road to full maturity. We look forward to delivering insights on the twists and turns along the way. Here’s to the next ten years!