Increase in dealmaking expected for 2025
Delayed deals from 2023 and 2024 combined with ongoing private equity asset rotation and stability in debt markets should drive M&A volumes in 2025, DC Advisory has predicted.
In the latest European Debt Monitor, the investment bank raised hopes for an increase in dealmaking activity this year, and expressed optimism around the UK debt market.
The report found that UK debt mid-market activity remained stable in the fourth quarter of 2024, with volumes rising from 62 in the third quarter to 92 in the fourth, reflecting a 37 per cent increase. For the full year, total deal volumes reached 296, surpassing the peak year of 2021, when 272 issuances were recorded.
“The positive trends in 2024 were primarily driven by improving interest rate dynamics,” said the report.
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“We saw the pressure to deploy capital and prevent prepayments, amid strong private credit fundraising, lead to downward pressure on margins across the mid-market.
“Borrowers capitalised on favourable conditions to lower their cost of capital, with refinancing volumes reaching 63 per cent of volumes in the fourth quarter and 61.7 per cent for the full 2024 year.”
DC Advisory added that despite concerns surrounding UK economic policy, economic sentiment has improved compared to early 2024, with the Bank of England’s monetary easing further strengthening borrower confidence.
“The surge in refinancing activity has allowed borrowers to extend maturities, reducing immediate refinancing pressures for 2025,” said the report.
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“Sustaining momentum will require an uptick in new issuances and a revival of M&A activity.”
DC Advisory has also observed an uptick in portable refinancings in the year ahead as sponsors prepare their assets for sale. Meanwhile, stability in debt markets has increased confidence in securing financing for M&A transactions.
The firm added that the cost of borrowing remains low which should allow more companies to take advantage of the lower interest rate environment. Successful fundraisings announced by several private credit lenders should also contribute to the competitive environment this year.
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