Houlihan Lokey writes that, driven by a strengthening M&A market and increasing pressure on funds to deploy capital, UK sponsor-backed financing activity experienced a notable increase in Q2 2024, according to the latest data released by global investment bank, Houlihan Lokey.
With 55 transactions completed during the period, the report finds there was a 2 per cent increase in UK mid-cap deals compared to Q2 2023 (54 transactions) and a 20 per cent rise on Q1 2024 (46 transactions), although the first quarter is a traditionally low volume period. For H1 2024, the data finds a 7 per cent increase against H1 2023, indicating that UK deal flow activity has picked-up and debt market conditions are improving.
The data also reveals that debt funds played a dominant role, financing the vast majority (77 per cent) of completed deals in Q2, while banks contributed to under a quarter (23 per cent). The share of transactions by debt funds surged by 47 per cent in H1 2024 compared to the same period last year, while the number of bank transactions decreased by 44 per cent. The figures indicate, amongst other things, that funds’ appetite to finance deals has grown, driven in part by increasing pressure to deploy capital after a slow 2023.
Additionally, the report highlights a shift in the nature of financings in H1 2024, charting a marked rise in leveraged buyout (LBO) financings, which accounted for almost half (42 per cent) of all transactions, compared with just 29 per cent in H1 2023. These levels of LBO activity are in line with the levels seen in 2021 and 2022, reflecting strong support from the debt markets and another signal of optimism for the M&A landscape for the remainder of 2024.
Patrick Schoennagel, Managing Director in Houlihan Lokey’s Capital Markets Group and Head of Sponsor Finance, Europe, says: “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 (LBO) 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”.
