Unitranche deals drop 28% in Q4

The UK saw a significant drop in overall mid-market financing during 2022, while banks secured increased market share.

Pan-European unitranche financing fell by 28 percent during the final quarter of 2022, according to the latest Houlihan Lokey MidCapMonitor.

Worsening macro economic conditions led to a severe reduction in deal volumes during the final three months of the year, particularly in Europe’s largest markets the UK and France.

There were 91 transactions during Q4 2022, down from 127 in Q3, with the UK seeing a fall in deal numbers of 39 percent, France down 34 percent and Benelux seeing a 22 percent reduction in activity.

However, despite a tough final quarter, deal volume for the whole of 2022 saw 460 total financings, only 5 percent lower than in 2021, which was a record year with 486 deals.

While the UK saw a sharp reduction in activity it remains the largest market in Europe with 27 deals in Q4 2022, while Germany followed with 21 and France was in third place with 19 transactions.

Interestingly, 2022 saw a slight comeback from banks in financing mid-market deals in Europe’s largest markets. In the UK, banks increased the number of deals between 2021 and 2022 from 72 to 82, while debt fund financings covering both unitranche and senior financing fell from 180 to 146 over the same period. Despite this, debt funds remain dominant players in the UK market. The total number of financings in the UK fell from 252 deals in 2021 to 228 in 2022.

Germany saw a less pronounced shift, with bank financings increasing from 60 to 71 from 2021 to 2022, while debt fund deals dropped from 98 to 88. Germany also saw a stronger Q4 than other jurisdictions with transaction numbers between Q3 and Q4 rising 29 percent from 31 to 40, though this was following a slow third quarter.

France saw deal volumes grow overall in 2022 to 211 transactions, up from 175 in 2021. Debt funds also increased their market share and now account for 48 percent of the market.