Banks gaining share from non-banks in Europe

A survey of the region’s mid-market shows the debt market buoyant overall, but greater caution is driving borrowers into the arms of the banks.

Despite the geopolitical upheavals of the last year, European debt markets are in rude health with mid-market debt activity at its highest level since 2007, according to the latest bi-annual survey from business advisory firm AlixPartners.

The survey found that European mid-market deal activity rose 1 percent to 460 deals in 2016, although the UK market fell by 11 percent to 288 deals.

The big winners have been the banks, with all-senior banking structures accounting for 71 percent of all deals done in 2016, compared with 66 percent in 2015. Over the same period, the unitranche product fell from a 23 percent share to 19 percent and mezzanine declined from 4 percent to 2 percent.

The decline in unitranche comes as borrowers trade leverage for increasingly competitive senior terms, with all-term loan B structures increasingly being seen in mainstream banking deals and even in some lower mid-market deals with less than €20 million of debt.

While the UK accounted for 47 percent of Europe’s unitranche deals in 2016, the overall number fell from 120 in 2015 to 93 last year. By contrast, unitranche deals increased in France with Tikehau IM completing six such deals there and Alcentra five.

Senior banks are seeing off the threat of non-bank lending as private equity borrowers seek less leverage, due to macro uncertainty, while also looking to take advantage of attractive structures from the banks. HSBC and RBS together accounted for just under half of UK bank deals in 2016, with the former increasing its deal count from 62 in 2015 to 73 last year.

However, while the non-bank lenders have lost share overall, they have become more influential at the larger end of the mid-market. In both 2015 and 2016, they participated in around half of deals worth more than €150 million as funds increasingly move into the syndicated space and write larger bilateral cheques.

The survey noted that the last year has seen an increasing number and diversity of non-bank funds with moves towards specialisation such as Beechbrook Capital (UK sponsorless SME), IPF Partners (healthcare) and some moving into asset-based lending.

Despite this apparent increase in diversity, the top ten non-bank lenders increased their share of deals from 51 percent in 2015 to 60 percent in 2016. Tikehau IM led the way with 38 deals followed by Ares (27), Alcentra (18), and Muzinich and Hayfin (13 each).