UK sponsor-backed financing slowed slightly in the third quarter of 2024, with sluggish M&A activity and seasonal factors impacting deal flow, according to a report from investment bank Houlihan Lokey.
The report recorded 49 mid-cap transactions during the quarter, marking an 11% decline from Q2’s 55 transactions. Despite the quarterly dip, year-to-date activity remained stable, with a slight 1% increase compared to the same period in 2023.
The dominance of credit funds in the UK financing market was a standout trend in the data. Credit funds accounted for 73% of year-to-date transactions, up significantly from 66% last year, while banks saw their share drop to 27% in 2024 from 34% in 2023. This shift highlights a resurgence in confidence among credit funds, which have regained market strength after facing headwinds in 2023.
Leveraged buyout (LBO) financings continued to drive UK deal activity, comprising 40% of year-to-date transactions, reflecting a modest recovery in M&A activity compared to last year. Add-on financings also played a significant role, making up 36% of transactions, while refinancings accounted for 24%. The report notes that improving debt market conditions could bolster refinancing activity in the coming quarters as borrowers take advantage of better capital availability.
Patrick Schoennagel, managing director in Houlihan Lokey’s Capital Markets Group and head of sponsor finance, Europe, said: “Sentiment in the UK debt market remains positive heading into Q4, underpinned by strong liquidity and favourable financing conditions. Credit funds, in particular, continue to demonstrate an appetite to finance growth, offering flexibility in pricing and leverage, while remaining selective — focusing on quality assets, attractive sectors, and strong credit fundamentals.”
Schoennagel also highlighted the cautious but promising outlook for deal flow: “While the slower pace of M&A activity continues to temper overall deal volumes, the pipeline of new transactions heading into Q4 and 2025 is encouraging, suggesting that deal flow will pick up as improving market conditions support further activity.”
