Unitranche drives growth in European mid-market

Having slowed down a little in 2016, unitranche financings for European mid-cap firms shot up by 75% last year as Germany set new records.

Last year saw an unprecedented number of sponsored unitranche financings in Europe’s mid-market, with the number rising to 179 compared with 102 in 2016, according to the Q4 2017 MidCap Monitor from investment bank GCA Altium.

While growth in this market fell a little in 2016, 2017 saw an increase of 75 percent in transaction volume. Germany saw the biggest increase with unitranche deals climbing a remarkable 166 percent.

Other notable increases were seen in the UK (71 percent), France (68 percent) and the Benelux region (more than 50 percent).

The main purpose of unitranche financings stayed the same as the previous year, namely new transactions (57 percent), while refis/recaps and add-on acquisitions accounted for 43 percent.

The year saw an increase in the use of first out/second out structures for unitranche with the use of cheaper bank debt lowering the average margin of the unitranche.

The German mid-market in particular was the engine of European growth, with 100 debt-financed deals recorded for the first time, representing growth of almost 30 percent compared with the previous year.

Nearly all this growth was driven by debt funds, which recorded 32 deals versus 12 in 2016, while bank-funded deals nudged up from 65 to 68.

German debt funds accounted for 33 percent of overall activity in unitranche and senior debt in 2017, an all-time high. It also meant that the market share of debt funds was at a similar level to the UK.

Senior financings for the mid-market also reached a record level in Germany last year, though this part of the market saw only a small rise from 65 deals to 68.

Meanwhile, second lien financings disappeared completely from the German mid-market in 2017, having been seen in a handful of deals the previous year.