European mid-market transaction numbers dipped slightly in the first half of 2019, according to data from Deloitte.
The firm’s Alternative Lender Deal Tracker, which monitors mid-market private debt lending across Europe, found there were a total of 401 deals in the 12 months to the end of June. This was down 3 percent, from 414, in the same period in 2018.
During the first six months of 2019 there were 178 deals compared with 195 in the first half of 2018, a fall of 8.7 percent.
Despite falling deal numbers, the amount of capital deployed appears to be growing, which suggests funds are targeting larger-scale transactions. According to Deloitte, the value of private debt capital deployed reached a record high in 2018 of €38.1 billion. However, the first half of 2019 saw debt funds deploy €22.6 billion. With the second half of the year typically seeing more deal activity than the first, a new record could be set in 2019.
Deloitte said the increased pace of private debt deployment comes at a time when banks and high-yield bond markets are pulling back.
“This data potentially puts cold water on the fears that there is currently an overhang of undeployed direct lending capital,” the report said. “In fact, the data support quite the opposite. Not only has deployment remained in lockstep with fundraising, as private debt funds continue to raise record amounts of capital even as the economic warning signs are flashing, but the asset class is likely to provide a useful source of countercyclical credit”.
The UK continues to be the largest European market by some margin, despite ongoing uncertainty around the country’s departure from the EU, which was delayed during H1 2019. UK deals accounted for 36.5 percent of the 178 transactions in the first half of the year, while France made up 23 percent and Germany 11.2 percent.
Outside these three core geographies, Deloitte noted that debt funds were diversifying geographically as well. Over the last 26 quarters for which the firm has data, the UK, France and Germany have seen 732, 485 and 206 deals respectively. Yet several other countries have been attracting private debt, with 109 deals in the Netherlands, 88 in Spain, 61 in Italy and 45 in Sweden. In Eastern Europe, Poland has been dominant with 26 deals, but there has also been a smattering of transactions in countries including Croatia, Romania and each of the three Baltic states.