Debt funds dominate UK sponsor-backed deals in Q1
UK sponsor-backed mid-market financing activity increased in the first quarter of 2024, with debt funds financing the vast majority of deals.
New data from investment bank Houlihan Lokey showed that 47 transactions were completed during the period, an 18 per cent increase from 40 transactions in the first quarter of last year.
However, there was an eight per cent quarter-on-quarter decline, reflecting the traditionally low-volume first quarter.
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Houlihan Lokey’s MidCapMonitor showed that debt funds played a dominant role in financing these deals, equating to 77 per cent of completed transactions in the first quarter, while banks contributed to just 23 per cent.
Debt funds’ share of transactions has increased substantially from 48 per cent in the first quarter of 2023, which Houlihan Lokey attributed to funds coming under increasing pressure to deploy capital after a slow 2023.
The report also noted a significant rise in new LBO activity, accounting for almost half (48 per cent) of all financings in the first quarter, a four-year high.
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“We have observed a strong level of activity in the UK this quarter compared to that of last year, supported by the level of M&A activity and improved debt market conditions, which is an encouraging sign for the rest of 2024,” said Charles Martin, director in Houlihan Lokey’s Capital Markets Group.
Patrick Schoennagel, managing director and head of sponsor finance, Europe in Houlihan Lokey’s Capital Markets Group said that the data suggests a rise in deal flow activity as the year progresses.
“As we look ahead to Q2 2024, a promising M&A pipeline suggests a potential resurgence in deal flow activity in the second half of the year, bolstered further by anticipated BoE interest rate cuts in the summer,” he said.
“Despite a cautious approach to leverage multiples, both banks and debt funds demonstrate openness to quality assets, painting a positive outlook for the remainder of the year.”
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