UK debt market activity ticks up as LBOs increase
Sponsor-backed financing activity increased in the UK during the second quarter of the year, thanks to a marked rise in leveraged buyout (LBO) financings, new research has revealed.
According to data from Houlihan Lokey’s latest MidCapMonitor, LBO financings accounted for almost half of al transactions in the first half of 2024, compared with just 29 per cent during the same period in 2023.
Meanwhile, debt funds played a dominant role in lending, accounting for the vast majority of deals.
“Improving market conditions have laid a solid foundation for sustained momentum in financing activity that is marked by a decrease in pricing and increase in leverage due to heightened liquidity and competition,” said Patrick Schoennagel, managing director in Houlihan Lokey’s capital markets group and head of sponsor finance, Europe.
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“The significant uptick in LBO activity emerges as a particularly encouraging signal of market optimism and a reflection of the willingness of debt funds to deploy capital following a slump in activity in 2023.
“Looking ahead to the second half of 2024, a robust M&A pipeline signals the potential for a continued resurgence in deal activity, a trend that will only be bolstered should the Bank of England cut interest rates again later this year”.
Houlihan Lokey’s MidCapMonitor recorded 55 completed transactions during the second quarter of this year, representing a two per cent increase year-on-year and a 20 per cent rise quarter-on-quarter. This indicates that UK deal flow activity has picked up and debt market conditions are improving, the investment bank said.
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77 per cent of these deals were financed by debt, while banks contributed just under a quarter (23 per cent).
The share of transactions by debt funds surged by 47 per cent during the first half of the year, compared to the same period last year, while the number of bank transactions decreased by 44 per cent.
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