Leveraged buyout financings accounted for almost half (42%) of all UK mid-cap debt market transactions in H1 2024, compared with just 29% in H1 2023, according to the latest MidCapMonitor report by global investment bank Houlihan Lokey.
The bank’s MidCapMonitor report analyses mid-market private equity-sponsored debt financing activity across the UK, Germany, France, Spain, Benelux and the Alpine and Nordic regions.
The report found that activity in the UK debt market increased in Q2 2024, driven by a strengthening M&A market and increasing pressure on funds to deploy capital.
Debt funds played a dominant role, financing 77% of completed deals during this period, while banks contributed 23%.
The share of transactions by debt funds, meanwhile, surged by 47% in H1 2024 compared to the same period last year, while the number of bank transactions decreased by 44%. This indicates that there is a growing appetite for finance deals, partly driven by increasing pressure to deploy capital after a slow 2023.
The report also revealed a 2% increase in UK mid-cap deals (55 transactions) compared to Q2 2023 (54 transactions) and a 20% rise from Q1 2024 (46 transactions), although Houlihan Lokey notes that Q1 is traditionally a low volume period.
Patrick Schoennagel, Managing Director in the capital markets group and Head of Sponsor Finance, Europe at Houlihan Lokey, commented: “Improving market conditions have laid a solid foundation for sustained momentum in financing activity that is marked by a decrease in pricing and increase in leverage due to heightened liquidity and competition. The significant uptick in leveraged buyout activity emerges as a particularly encouraging signal of market optimism and a reflection of the willingness of debt funds to deploy capital following a slump in activity in 2023.
Looking ahead to the second half of 2024, a robust M&A pipeline signals the potential for a continued resurgence in deal activity, a trend that will only be bolstered should the Bank of England cut interest rates again later this year.”
