Data from Houlihan Lokey’s MidCapMonitor showed that UK sponsor-backed financing activity significantly increased YoY in Q1 2024.
Debt funds played a dominant role in lending, accounting for the vast majority of deals, the firm says.
Driven by a strengthening M&A market and robust debt fund activity, UK mid-market financing activity significantly increased in Q1 2024, compared to the same period in 2023, according to the latest data released by global investment bank, Houlihan Lokey.
With 47 transactions completed during the period, the report finds there was a substantial 18 per cent increase in UK mid-cap deals compared to Q1 2023 (40 transactions). Although there was a slight 8 per cent decline from Q4 2023 (51 transactions), this is typical for the traditionally low-volume first quarter.
The data reveals that debt funds played a dominant role in the activity this quarter, financing the vast majority (77 per cent) of completed deals in Q1, while banks contributed to under a quarter (23 per cent). The increase in debt funds’ share of transactions represents a significant 48 per cent increase from Q1 2023, suggesting that funds are under increasing pressure to deploy capital after a slow 2023.
Additionally, the report highlights a shift in the nature of financings in the first quarter, charting a marked rise in new LBO activity, which accounted for almost half (48 per cent) of all transactions, returning to levels not seen since Q1 2020. This reflects the uptick in M&A activity in the region this year.
Charles Martin, Director in Houlihan Lokey’s Capital Markets Group, says: “We have observed a strong level of activity in the UK this quarter compared to that of last year, supported by the level of M&A activity and improved debt market conditions, which is an encouraging sign for the rest of 2024.”
Patrick Schoennagel, Managing Director and Head of Sponsor Finance, Europe in Houlihan Lokey’s Capital Markets Group, says: “As we look ahead to Q2 2024, a promising M&A pipeline suggests a potential resurgence in deal flow activity in the second half of the year, bolstered further by anticipated BoE interest rate cuts in the summer. Despite a cautious approach to leverage multiples, both banks and debt funds demonstrate openness to quality assets, painting a positive outlook for the remainder of the year.”
