European deal volumes slide for fourth consecutive quarter

European deal volumes fell for a fourth consecutive quarter in Q2 2023 amid tough market conditions for lenders, according to data from Deloitte.

In its latest Private Debt Deal Tracker update, Deloitte said deal volumes are at their lowest level since H1 2020, when the covid-19 pandemic had just broken out and shut markets across the world. Deal volumes in Europe are now less than half of the peak quarterly level of 229 deals recorded in Q3 2021.

Deals in Q2 2023 fell to 111, down by 23.4 percent on Q1 2023 and were down by 47.9 percent compared with the same quarter in 2023. Deal numbers in H1 23 were 36.2 percent lower than in the same period in 2022.

The UK market has been particularly subdued, Deloitte said, with investors seeking out European countries that have better mid-term growth outlooks. UK deal volume fell 41.4 percent between H1 2022 and H1 2023. While the UK has historically been the largest private credit market in Europe, recent quarters have seen the country slip behind France. The UK’s share of the European deal market fell from more than one-third of deals (34.8 percent) in 2022 to just over one-quarter (26.2 percent) in 2023 YTD.

Declining LBO activity is one major factor impacting private debt deal volumes. Deloitte says many sponsors are focusing on generating more alpha from existing portfolio companies rather than pursuing new deals. Deals focused on new LBOs dropped to their lowest level since Q2 2020, making up less than 30 percent of activity in Q2 2023, but bolt-on financings have become more prevalent, making up almost 50 percent of deals.

Leverage multiples have also fallen, with financings of more than 4x declining from 71 percent to 61 percent on Q2 2022. Over the same period, deals between 3x-4x increased from 15 percent to 20 percent and deals at less than 3x increased from 14 percent to 19 percent.