UK mid market deal activity hit by “seasonal” slowdown
UK debt mid-market deal activity slowed in the third quarter of the year, in “a typical seasonal slowdown”, according to DC Advisory’s latest European Debt Market Monitor.
Deal making volumes fell from 65 to 62 between the second and third quarters. However, volumes were still up by 21 per cent year-over-year, the investment manager noted.
“Positive sentiment in early Q3 2024 was supported by several factors,” said the report’s authors. “Easing inflation, a decisive Labour win in the general election, and the Bank of England’s August base rate cut.
“However, we believe optimism during the quarter may have been slightly tempered by expectations of a challenging UK autumn budget and ongoing global geopolitical uncertainties, particularly surrounding the uncertain outcome of the US election – which collectively weighed on market sentiment.”
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DC Advisory added that leveraged buy-outs (LBOs) remained steady at 25, compared with 22 the previous quarter. While this remains below historical averages, the report noted that capital has continued to flow towards refinancings. Refinancing activity accounted for 60 per cent of volumes in the third quarter of 2024.
“In response to competition from the broadly syndicated loan (BSL) market, we have observed direct lenders proactively reduce margins, in some cases to below 500bps, attracting borrowers seeking to reduce their cost of capital,” added DC Advisory in the report.
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“Additionally, a trend we observed last quarter has persisted: the increased use of alternative financing structures, such as continuation vehicles, and greater utilisation of dividend recaps to derisk for LPs due to extended hold periods.”
Meanwhile, in the European debt market, BSL volumes have reached a three-year high, making 2024 the strongest year for volumes since the pandemic. On the private credit side of the European market, refinancings, extensions and repricings dominated loan supply, DC Advisory added.
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