European deals surge 25% in Q2 – report

Strong activity in the UK and France helped push deal numbers higher in Q2 2022, but banks were able to regain market share in some countries.

European unitranche deal numbers surged by 25 percent in Q2 2022 with 130 transactions closed, according to the latest Houlihan Lokey MidCapMonitor.

Deal numbers increased from 104 in Q1 2022, also a strong showing for private credit activity in the region. The UK was the most active market, with 42 deals, followed by France with 29 and Germany with 23. The Benelux region saw 16 deals, with 14 of those coming from the Netherlands.

The bulk of growth came from the UK and France, which each saw an almost 40 percent increase in deal numbers while others remained flat.

While the software, technology and healthcare sectors have been dominant in recent years due to their perceived safety, their growth has slowed in 2022. According to Houlihan Lokey, there has been an increased appetite for financing more challenging sectors such as industrials, consumer and businesses services, though with more conservative leverage and higher pricing.

Norbert Schmitz, managing director in Houlihan Lokey’s capital markets group, said: “Although liquidity in the mid-market has somewhat reduced over recent weeks, in our view, the Q2 2022 development is testament to the fact that the European mid-cap LBO market is highly resilient, with significantly less volatility compared to the capital markets.

“We consider traditional direct lenders currently rather cautious and selective with respect to new financings, whereas more opportunistic debt funds see the current market environment as an excellent opportunity.”

Debt funds are also continuing to maintain the bulk of market share in key markets during H1 2022. In Germany, funds accounted for 47 percent of deals completed and 63 percent of deals in the UK; while in France, banks regained some ground compared with 2021 and account for 51 percent of deals completed.

Looking toward Q3 and the rest of the year, Schmitz added: “The mid-market has a track record of being more resilient and less volatile than the large-cap market, and that should in principle provide a good tailwind for the next quarter, though rising interest rates and raw material and energy costs will have an even greater effect in the next six months.”