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Europe’s deal slowdown arrived in Q3
The first evidence of a slowdown in European private debt deals emerged in the third quarter of 2022, according to Deloitte’s latest Alternative Lender Deal Tracker.
In the face of macroeconomic headwinds, Q3 saw 193 completed deals, representing a decrease of 15.7 percent year-on-year compared with the same quarter of 2021 and an 11.1 percent decline on the second quarter of last year. However, the annual total for 2022 looks likely to beat the 2021 total due to a strong deals market in H1.
The third quarter saw the UK’s lowest ever volume of deals by percentage since the deal tracker began – accounting for 28.5 percent of Europe’s total as the number of UK deals dropped from 63 to 55. The French market, by contrast, saw buoyant activity with a share of 26 percent – its third successive quarter with a share greater than 24 percent. By the end of Q3, France had already passed the total volume it recorded in 2021.
Leveraged buyouts and bolt-on M&A transactions accounted for 75 percent of European deals in Q3, the highest proportion of acquisition-related deal activity in the history of the deal tracker. Refinancing deals continued a historic decline, falling from 16 percent in the first two quarters of 2022 to 12 percent in the third quarter.
TMT, business/infrastructure/professional services and healthcare/life sciences continued to be the three most popular sectors, accounting for 25 percent, 20 percent and 17 percent of deal activity respectively. The three sectors have accounted for between 59 percent and 66 percent of all deals since 2020.
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Andy Thomson, senior editor of Private Debt Investor, and Robin Blumenthal, Americas editor, discovered much optimism as the banks once again pulled back from lending activities – widening the space for private debt to move into. They were also told of the difficulties borrowers are likely to face as rising rates put pressure on their ability to service debt. It’s a mixed picture as the asset class heads into a new year.
Churchill wraps up $737m junior fund
Churchill Asset Management has closed its Churchill Junior Capital Opportunities Fund II after raising $737 million in limited partner commitments. The close also includes a $65 million rated note aimed at meeting the needs of insurance company investors.
Fund II is an unlevered fund that has a North American corporate mid-market focus, with private equity-sponsored portfolio companies. It launched, according to PDI data, in December 2020.
The closing figure exceeds the target of $500 million and more than doubles the size of the predecessor fund at $300 million. Churchill AM said in a statement that the investors include large pension plans and insurance companies based in both North America and Europe.
Jason Strife, leader of Churchill’s junior capital and private equity solutions team, said upon close that the success of the fundraise illustrates the team’s “differentiated deal sourcing approach, flexible junior capital mandate [and] proven track record”.
Churchill is the private capital specialist of Nuveen, TIAA’s asset manager. It combined with Nuveen’s private equity platform in 2020 and now operates as a unified equity and debt investor.
In October, Nuveen agreed to acquire a controlling share of credit manager Arcmont Asset Management, a deal expected to close within the first half of this year.
Direct lending outpaces syndicated loans
The latest market update from Monroe Capital notes the deal slowdown in 2022 also covered by Deloitte (see above), but says that “direct lending is still outpacing syndicated loan transaction volume, especially where LBO loans are concerned”.
Monroe says private credit providers are targeting large loans that previously would have been done in the syndicated loan market and, as a result, drove most of the LBO activity that was taking place in the second half of last year.
The firm pointed to Lincoln International data showing that spreads in the private debt market have continued to increase as lenders have become increasingly selective on new deals and reduced hold sizes.
Institution: Texas Municipal Retirement System
Headquarters: Austin, US
AUM: $35.2 billion
Texas Municipal Retirement System has confirmed its pacing plan for 2023, as well as a $50 million commitment, according to its latest board meeting materials.
The US pension fund plans to invest $1.25 billion in the private debt market in 2023. The firm’s current allocation to private debt stands at 8.1 percent, which is below its target of 10 percent.
TMRS also confirmed a commitment of $50 million to Pemberton Mid-Market Debt Fund III. The pension fund has an existing relationship with the GP. Pemberton Asset Management is an independent asset manager focused on private debt and direct lending to European mid-market companies.
TMRS’s projected private market exposure sits at 39 percent currently, but is in line to meet its target of 44 percent.