Activity in the UK debt market has surged, driven by a strengthening mergers and acquisitions (M&A) pipeline and increasing pressure on credit funds to deploy capital, data has shown.
According to data from investment bank Houlihan Lokey’s data, sponsor-backed financing in the UK saw significant growth in Q2 2024, marking a positive shift in market conditions.
The report highlighted that 55 transactions were completed during Q2 2024, reflecting a 2% increase compared to Q2 2023 and a notable 20% rise from Q1 2024, traditionally a low-volume period. For the first half of 2024, deal flow was up by 7% compared to H1 2023, signalling an overall improvement in the UK’s mid-cap financing landscape.
According to the researchers, debt funds played a dominant role in this resurgence, financing 77% of the completed deals in Q2, while banks contributed to just 23%. The share of debt fund-financed transactions increased by 47% in H1 2024 compared to the same period in 2023, indicating heightened appetite among funds to finance deals, spurred by the need to deploy capital after a sluggish 2023.
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A significant trend observed in the report is the rise in leveraged buyout (LBO) financings. In H1 2024, LBOs accounted for nearly 42% of all transactions, up from 29% in H1 2023. According to the researchers, this level of activity matches the robust LBO financing seen in 2021 and 2022, reflecting strong support from the debt markets and signalling optimism for the M&A landscape moving forward.
Patrick Schoennagel, MD in Houlihan Lokey’s Capital Markets Group and head of sponsor finance, Europe, commented: “Improving market conditions have laid a solid foundation for sustained momentum in financing activity marked by a decrease in pricing and increase in leverage due to heightened liquidity and competition. The significant uptick in LBO activity emerges as a particularly encouraging signal of market optimism and a reflection of the willingness of debt funds to deploy capital following a slump in activity in 2023.
Looking ahead to the second half of 2024, a robust M&A pipeline signals the potential for a continued resurgence in deal activity, a trend that will only be bolstered should the Bank of England cut interest rates again later this year”.
