European private debt deals double in Q4 rebound

European private debt deal volumes bounced back in the final quarter of 2020, almost doubling between Q3 and Q4, according to the GCA Altium MidCap Monitor.

GCA Altium recorded 103 unitranche deals by direct lending funds in Q4 2020, up from 53 in the third quarter. The UK and Germany saw the biggest recovery, with deal volumes almost doubling in both countries. The UK saw deals jump from 20 to 39 while German activity increased from 11 to 21 deals.

On an annual basis, GCA Altium recorded 97 sponsored unitranche deals in the UK, 53 in Germany and 41 in France.

The report states that while there were new deals throughout Europe, there was also an exceptionally high number of portfolio company transactions such as refinancing, recapitalisations and add-on financing.

Germany has seen the strongest recovery in total mid-market debt activity with 96 deals during 2020 across both banks and debt funds, only slightly down on the 100 deals seen in 2019. Furthermore, debt funds have increased overall deal numbers from 52 to 57 deals, growing their market share to 59 percent.

A similar picture is seen in the UK where debt fund deals increased from 85 to 97 between 2019 and 2020. However, banks in the UK retrenched more significantly than in Germany, dropping from 93 deals in 2019 down to 27 deals last year. As a result, debt funds accounted for a huge 78 percent of the market.

Deal activity in France is significantly down for the year as a whole with 89 deals compared to 143 in 2019. This was largely due to banks being cautious, with bank deals falling from 91 down to 48. While debt fund deals also declined, down from 52 to 41, the major retrenchment in France’s usually highly active banks meant debt fund market share increased from 36 percent to 46 percent.

GCA Altium said the outlook for Q1 2021 is positive despite a second phase of covid-19 lockdowns in Europe. It said pipelines remain strong and expected easing of economic restrictions in the short to medium term is likely to drive further positive market sentiment.