Private debt deal volume falls across major European markets – report

European unitranche financing volume has continued to fall in Q1 2023, according to the latest research from Houlihan Lokey.

In its most recent MidCapMonitor, the firm revealed there were 78 unitranche financings in Europe during the first quarter, down from 95 in Q4 2022. This continued an existing trend of decline from 134 deals in Q2 2022.

Houlihan Lokey said the direct lending market has been hit by ongoing adverse events including the war in Ukraine, high inflation and increasing interest rates.

The French market was hardest hit of major markets in Europe, with a fall in deal numbers between Q4 2022 and Q1 2023 of 32 percent. Banks continue to hold the majority of market share in France, up to 68 percent in the first quarter.

Germany also saw a significant drop off in activity during the quarter, down 29 percent to 28 deals, though debt funds hold a majority of market share accounting for 54 percent of transactions in the quarter.

The UK saw a less serious contraction, with deal numbers down 16 percent compared to the previous quarter. Of the 40 deals recorded, debt funds held a 62 percent market share in a country that has seem credit funds dominate since 2020.

In both Germany and the UK, add-on financing has become more common and accounted for 46 percent and 42 percent of activity respectively. This may be due to decreasing equity prices making it easier for firms to acquire suitable add-ons to existing, strong-performing portfolio companies. LBO activity on the other hand was down in both countries.

Outside of the biggest markets, Spain saw deal volume fall from 17 in Q4 2022 to just 8 in Q1 2023, while Austria and Switzerland saw a slight increase in deals to nine transactions. Benelux financings were flat with 16 in Q1 and in the previous quarter, while the Nordic countries saw nine deals close, up from five in the last quarter of 2022.