Deals, fundraising down but some sectors buoyant

The latest Alternative Lender Deal Tracker from Deloitte shows healthcare, financial services and software deals in hot demand despite the travails arising from covid-19.

Deloitte’s Alternative Lender Deal Tracker report for H1 2020 shows large decreases in deal and fundraising activity across Europe for the survey’s universe of 60 alternative lenders.

The overall number of deals in Europe fell to 140, compared with 197 in the first half of 2019. The UK saw a 44 percent decline in deals, while French deals tumbled 55 percent and the rest of Europe 56 percent.

The biggest decline, perhaps unsurprisingly, came during the peak pandemic months of April and May when the number of European deals in the two-month period declined from 115 in 2019 to 48 in 2020, a decline in volume of 58 percent.

All different types of transaction declined in number in the first half, ranging from a huge 73 percent fall in dividend recaps to a relatively modest 5 percent decrease in leveraged buyouts.

However, capital is flocking to those sectors perceived to be relatively unaffected by – or perhaps even in some ways benefitting from – the challenging backdrop. In the healthcare, financial services and software sectors, commercial terms are close to what they were pre-covid-19. Businesses are able to command 5.5-6.0 times leverage at pricing of 600-650 basis points.

As well as deals, fundraising has also been badly affected. Global direct lending fundraising totalled $18.2 billion across 17 vehicles in the first half, compared with $52.6 billion in the first half of last year. This puts direct lending on course to have its slowest fundraising year since 2015.

However, the report adds a positive note in terms of the asset class’s enduring appeal, saying that it “is likely to retain favour amongst investors as it offers attractive risk-adjusted premiums compared to other asset classes in a likely continued low-yielding environment for the next decade”.