WORLD VIEW
BANKS REMAIN COMPETITIVE BUT INSTITUTIONAL LENDERS MAKING STRONG PROGRESS WITH INCREASED UNITRANCHE PENETRATION ACROSS EUROPE Bi-annual AlixPartners mid-market debt survey highlights the gap is narrowing between European lending sources. Over the last 12 months, an increasingly diverse mix of non- bank lenders have been active at both the lower (sub- 20 million bilateral debt) and upper (club/ syndicated deals above 200 million) ends of the mid-cap debt market, according to a new survey from AlixPartners, the global business-advisory firm. Highlights: 441 leveraged transactions recorded in 2015 compared to 326 in 2014, albeit partially driven by increased survey coverage Upward trend mirrored in UK and Ireland with deal count increasing by 7% to 234 Traditional banks still dominate midmarket deal flow, with HSBC leading for the second year however total bank deal count fell 4% on average across the top seven lenders
amounts raised by these funds. As a result, the market has become more competitive leading to increasingly attractive terms for borrowers. While we have seen several large funds begin to encroach the lower end of the syndicated market over the last 12 months with bilateral take-and-hold positions, we have also seen increased competition at the lower end of the midmarket with the emergence of a number of smaller funds targeting the SME lending space. With competition intense some of the larger funds have also been observed dipping below their original lending threshold, typically £10m EBITDA, in order to deploy capital. That said, there’s been a noticeable fightback by some UK banks looking to protect ancillary income and this is likely to continue through 2016.” Tom Cox, Director, Debt Advisory at AlixPartners said, “Looking ahead, we expect to see further growth in the nonbank funding market in 2016 as Europe continues its transition towards a more US style financing market. In the mid-term, we believe that competition in Europe will become more intense with increasingly scarce deal flow, which is likely to see more focussed attempts by key funds to source proprietary deals and penetrate regions traditionally dominated by local banks such as the Benelux, Iberia, and the Nordics.” Traditional banks continue to dominate deal flow – but the gap is narrowing
Non-bank lenders are taking greater mid-market share, with the top six funds increasing deal count by 36% on average Deal purpose tracked trends observed in the large-cap market with a decline in refinancing activity during H2 2015 Continued growth of the unitranche product with 111 deals in 2015 (up 61%), across a wider spread of geographies in Europe
Driven by strong institutional liquidity and despite wider macro-economic volatility, transaction volumes in the midmarket were robust in 2015. The annual AlixPartners survey reveals that whilst there has been strong growth in the number of non-bank transactions, the mid-market is still dominated by commercial banks, still representing 67% of all deal participations tracked in 2015.
The UK and Ireland remain the most developed unitranche market with 54 deals recorded, compared to 32 during the full year 2014 (up 69%) Alcentra, Bluebay and Permira Debt Managers were the most active unitranche lenders covered, deploying a wide spread of ticket sizes across a range of sectors
HSBC maintained its position as the most prolific mid-market bank lender for a second year running, with 67 deals recorded in the survey, albeit the gap has narrowed to RBS and Lloyds. HSBC participated in 15% of all deals tracked across 2015 and 27% of deals in the UK and Ireland (albeit the latter was down from 38% in 2014).
Jacco Brouwer, Head of Debt Advisory at AlixPartners said, “We are continuing to see strong growth in non-bank lending, in terms of the number of transactions completed, the number of funds active in mid-market direct lending, and the total
Overall, and despite the usual flurry of deals in December, activity levels across 2015 seemed to point to higher credit quality and a focus on maintaining market share during the first half of the year, as several lenders reportedly turned down deals with aggressive leverage or pricing
requests post summer. Despite strong activity levels in the first six months, mid- market bank deal share contracted marginally in 2015 with total deal count falling 4% on average across the top seven lenders3 surveyed (HSBC, Lloyds Banking Group, Barclays, Bank of Ireland, NIBC, SMBC and Santander) compared to 2014. Non-banks continue to gain traction By contrast, non-bank lenders, several of which are now supported by multibillion £/ funds, have continued to secure market share gains, with the top six non-bank lenders4 increasing deal count by 36% on average. This included the likes of Alcentra which increased its total deal count by 80% compared to 2014, including 16 bilateral unitranche deals (67% of all their deals). With a strong focus on France (85% of all deals), Tikehau Investment Management continued to deploy capital, primarily via senior financings, while Sankaty Advisors and Permira Debt Managers increased deal count in 2015, especially during the second half, supporting deals across the UK, Germany and Scandinavia. While not exhaustively covered in this edition of the survey, Ares Management is also considered one of the leading non- bank lenders in the market, having deployed capital in a number of high profile transactions during 2015, including the 250 million bilateral facility backing Eurazeo’s buyout of Irish tax-free shopping services firm Fintrax (Source: Private Debt Investor). Refinancing volumes down, unitranche penetration up Another clear trend in 2015 was the decrease in refinancing activities. The proportion of refinancing and dividend
Gamechangers 39