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German mid-cap LBO market enjoys another record year in 2017, says GCA Altium

The German mid-cap LBO market experienced another year of significant growth in 2017, according to the latest MidCapMonitor by GCA Altium which analyses leveraged buyout finance transactions with a credit volume of between EUR20 million and EUR500 million.

There were a total of 100 such transactions for the entire year of 2017, representing a rise of 30 per cent compared with the previous year. 
 
The growth was fuelled in particular by debt funds, which produced a gain of 166 per cent with 32 transactions. Generating 68 transactions, banks financed just three more deals than they did in the previous year (a slight gain of just 5 per cent).
 
In 2016, banks made life in the German mid-cap LBO market particularly hard for debt funds with very aggressive structures. The debt funds have responded and sharply reduced their average interest margin rates by including favourable first ranking senior tranches held by banks.
 
“More than 40 per cent of the transactions financed by debt funds were set up as first-out/second-out structures,” says Johannes Schmittat, Managing Director of the Frankfurt office of GCA Altium. By taking this approach, debt funds were able to significantly increase their market share to 32 per cent in 2017 (compared with 16 per cent in the previous year).
 
Among banks, SEB defended the 12-month market-leadership position it achieved in 2016. But it had to share this position with Unicredit, the most active bank in the market during the fourth quarter. “Both banks successfully completed 23 transactions each,” said Norbert Schmitz, another Managing Director at GCA Altium. Five other banks financed more than 10 LBO transactions each: IKB (19), Commerzbank (17), NIBC (14), DZ Bank (11) and ING (11).
 
“Despite this impressive performance, we think banks will have a very hard time in the future when they try to regain market share lost to debt funds,” says Schmitz.  
 
In the second half of 2017, banks provided new LBO financing for such companies as Bien-Zenker/Hanse Haus, AVS, svt, DefShop and proALPHA. Recaps and refinancings were provided to ATESTEO, Sport Group, COMCAVE.COLLEGE and Schleich, among others. 
 
The entire European market for unitranche finance provided by debt funds also set a record in 2017 with a total of 179 transactions, generating a gain of more than 75 per cent compared with the previous year. In addition to Germany with 32 transactions, unitranches were also extensively used in the UK (70 transactions), France (42) and the Benelux countries (12). 

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