Deal activity snaps back following a subdued Q1, with volumes returning to levels previously seen in 2022
European deal activity rebounded sharply in Q2 with 246 deals1 completed, a 110% increase2 compared to Q1 and the highest quarter, by volume, on record since Deal Tracker inception (previous high of 2293 in Q3 2021). Compared to H1 2023 (262 deals), activity in H1 2024 increased by 39% with 363 deals completed in the first half of the year. Despite this notable year-on-year increase, H1 2024 volumes were only slightly higher than H2 2023 (329) and are now running broadly in line with 2022 bi-annual volumes, perhaps indicative of activity levels reaching a steady-state. On reflection, recognising that average transaction time is taking 4-6 weeks longer than it did 18-24 months ago, it is likely that the sharp uptick in Q2 is a result of processes touted for Q1 spilling over into the latter quarter, coupled with sheer pent-up demand from equity and debt investors with high levels of dry powder.

Activity surges in the UK, with the highest quarterly deal count since Q3 2021
UK quarterly activity (73 deals) was the busiest on record since the market-highs of Q3/Q4 2021. By way of comparison to 112 deals completed in H1 2024, only 71 deals were completed in H1 2023 (a 58% year-on-year increase). Of these 112 deals, 35% were new LBOs, in line with the relative proportion of LBO activity observed back in 2020 and 2021 - once again an indication that the UK market may gradually be beginning to resettle. In France and Germany, activity levels in Q2 rebounded to those previously observed at the end of 2023, with 60 and 31 completed deals respectively.

Leverage continues to remain subdued, albeit indications suggest that pricing may be starting to taper
TMT (27%), Business Services (21%), Healthcare & Life Sciences (13%) and Financial Services (12%) continued to prevail as the leading industries in H1 2024, accounting for 73% of deals. Leverage across these assets continued to slide, however, with only 18% of LTM Jun-24 deals exceeding 5.0x versus 35% of LTM Jun-23 deals. In comparison, pricing has started to come down - likely, in part, a response to the resurgence of the syndicated loan market in H1. As of LTM Jun-24, 25% of deals exceeded 7% margin compared to 36% in LTM Jun-23. With further base rate cuts anticipated in H2, it will be interesting to see whether lenders start to adopt a more aggressive attitude towards leverage, or whether they will continue to remain measured in light of other structural concerns around the sustainability of debt serviceability.

European LBO market continues to remain benign, despite uptick in UK buyouts
Despite UK LBO activity gradually beginning to return, on a proportionate basis, to levels seen in 2020 and 2021, other regions are yet to experience the same uptick. Consistent with 2023, most deals across Europe (excluding UK) in H1 2024 were strategic bolt-on acquisitions, representative of 36% of transactions. Similarly, as observed in H2 2023, refinancing activity remained relatively high, accounting for 19% of European deals. If H1 indications are anything to go by, it is looking likely that the UK will be the first market to unshackle following the relatively benign period of deal making over the past 18-24 months, with continental Europe likely to follow in due course.

Following the Bank of England's tightly contested decision to cut rates for the first time since 2020, in the process joining the European Central Bank (ECB), Swiss National Bank (SNB) and Sveriges Riksbank in loosening their monetary policy, it will be interesting to see whether the rebound in UK activity is set to continue into H2. There are, of course, other factors in play that private debt and private equity will need to navigate, not least the re-introduction of a UK Labour government, impending elections in the United States, and the general macroeconomic backdrop which, based on recent equity market movements, could have wider-reaching implications.