UK debt markets show signs of softening
UK debt markets showed signs of softening in the third quarter of the year, a new analysis by Houlihan Lokey has found.
Sluggish M&A activity and seasonal dynamics were blamed for a slight decrease in sponsor-backed financing. Houlihan Lokey found that credit funds continued to dominate the market, providing financing for the vast majority of transactions last quarter.
“Sentiment in the UK debt market remains positive heading into Q4, underpinned by strong liquidity and favourable financing conditions,” said Patrick Schoennagel, managing director in Houlihan Lokey’s capital markets group and head of sponsor finance, Europe.
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“Credit funds in particular, continue to demonstrate an appetite to finance growth, offering flexibility in pricing and leverage, while remaining selective — focusing on quality assets, attractive sectors, and strong credit fundamentals.
“While the slower pace of M&A activity continues to temper overall deal volumes, the pipeline of new transactions heading into Q4 and 2025 is encouraging, suggesting that deal flow will pick up as improving market conditions support further activity.”
Houlihan Lokey’s research found that 47 transactions were completed during the third quarter of the year, representing an 15 per cent decrease in UK mid-cap deals compared with the previous quarter.
Deal activity was down by one per cent compared to the same period in 2023.
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The data also found that 72 per cent of the transactions carried out in the year to date were arranged by credit funds, compared with just 28 per cent for banks.
Leveraged buyout financings remained the key driver of UK deal activity, representing 29 per cent of year-to-date transactions. Meanwhile, add-on financings represented a 37 per cent share, while refinancings comprised 24 per cent of the deal activity in the year to date.
Houlihan Lokey added that improving debt market conditions are expected to support a rise in the share of refinancing activity in the coming quarters, as borrowers seek to capitalise on the increasing availability of capital.
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