M&A deal volume decline hurts private debt

Despite the recovery of M&A deal value over the last six months, the lack of activity in the mid-market is a negative for private debt providers.

The lack of merger and acquisition activity in the European mid-market is a negative for private debt funds which have been active in this area.

The value of buyout deals in Europe rose in the first half of 2017 to €35.8 billion, according to figures from the Centre for Management Buyout Research. That’s up from €26.2 billion in the second half of 2016. 

MA chart

This is largely bolstered, however, by larger deals rather than mid-market transactions which typically lend themselves to private debt financing.

“The mid-market has come off quite a lot since Brexit,” said Callum Bell, head of corporate and acquisition finance at Investec. “I think it’s a negative [for private debt].”

While the market is conducive to deals, Bell said there are few opportunities for debt funds. That’s not for a lack of trying on behalf of fund managers, he added. “We’ve seen them act very commercially in terms of taking ideas and solutions to clients,” he said.

One way of combating the lack of activity in the European mid-market is to have a geographically diverse operation, Bell noted. “The positive is if you’re a multi-geography fund the market is still large.”

While the lack of mid-market activity isn’t a huge concern for private debt funds at the moment, it may lead to issues if it continues. “It will almost certainly have an impact if it persists,” Bell said.