Bi-annual AlixPartners mid-market debt survey reveals that there has been a significant rebound in ‘Unitranche’ deals, up 30 per cent on H2 2016.
Some 124 deals in the last twelve months represents the highest volume recorded. Overall midmarket deal count in H1 2017 was 244, up 12 per cent from the same period last year.
Over the last six months unitranche structures have rebounded representing 29 per cent of all deals, up from 19 per cent over the whole of 2016. According to the bi-annual mid-market debt survey, there was also an increase during H1 2017 of ‘stretched-senior’ hybrid products, which are offered by certain funds capable of pricing capital at lower yields than standard unitranche lending.
The UK still leads the way in terms of the number of unitranche deals completed (28 deals in H1 2017 compared to 27 in H2 2016), but there has been increase penetration in continental Europe, especially in the German and Dutch markets, driven by recruitment of local market originators. The analysis highlights that some funds have taken a more direct approach to enhance local market presence, given the heavily relationship-driven nature of certain regions.
In the first half of this financial year, there have also been evidence of the much discussed (hybrid) asset-based / unitranche deal structure gaining traction, utilised in LDC’s leveraged buyout of Addo Food1, funded by Guggenheim and US bank, PNC Business Credit.
Jacco Brouwer, Head of Debt Advisory at AlixPartners, says: “We were pleased to see an uptick in mid-market deal volumes in H1 2017, with deal count up 12 per cent compared to H1 2016 and 6 per cent on an LTM basis. The market is increasingly competitive and borrower financing options have never been so diverse with continuing evidence of new institutional market entrants supplementing an already well populated marketplace.”
Despite the increased lending options available to borrowers, the hegemony amongst the core UK banks has remained relatively unchanged with HSBC continuing to lead the mid-market (31 deals reported in the UK during H1 2017). However, Lloyds, AIB, Santander and SMBC all significantly increased deal count, with the latter also active in pan-European deals. Following an impressive end to 2016, RBS deal activity was down (20 deals) and Barclays has continued to fall following the mid-market portfolio disposal to Ares in late 2015.
Following a relatively quiet 2016, the non-bank market rebound strongly in H1 2017 (deal count up 14 per cent in the last twelve months). This recovery has been supported by market share gains by the top ten non-bank lenders, up from 60 per cent in 2016 to 67 per cent in H1 2017, despite the increasing number of private funds and new market entrants overall. The most active non-bank lenders tracked by the survey remain Ares (16 deals) and Tikehau IM (16 deals), who lead the European private debt market.
Evidence of market share growth has been driven by a variety of factors, one of which is that several of the larger and more mature funds such as Ares, Tikehau IM and Alcentra, amongst others, have larger volumes of capital to deploy, a longer term track record with the sponsor and advisory community and well-established origination efforts, often involving European offices or employing native speakers covering European territories from London.
H1 2017 also saw a material increase in deal activity from Bain Capital (ten deals), GSO Capital (nine deals) and Permira Debt Managers (eight deals) which is likely to have supported the share gains observed amongst the top ten players over the last six months.
Tom Cox, Director, Debt Advisory at AlixPartners, says: “The top 10 non-bank lenders tightened their grip on the institutional market in H1 2017. With the Unitranche product (sometimes in a stretched senior form) reaching an LTM peak (124 deals), the firepower available from the larger funds continues to impress, with increasing appetite to fund larger tickets (EUR150 million plus) on a take-and-hold basis.”
