Tue, Oct 25, 2022

European Mid-Market Debt Update – H1 2022 Review and H2 Outlook

We recently concluded our bi-annual mid-market deal survey covering H1 2022 in which more than 50 leading banks, credit funds and asset-based lenders participated, submitting deals completed in H1. Key trends witnessed are summarized below but we note that we have seen a significant increase in market volatility over the last few months, so trends seen in H1 are not representative for expectations for H2 and we refer to the Market Outlook comments.

The major findings of our survey were:

  1. After a record setting year in 2021, both M&A and mid-market debt deal activity levels continued to be very strong in H1 2022, defying the increased levels of uncertainty that started creeping into markets earlier this year on the back of geo-political events, supply chain pressures and rising inflation.
  2. Whilst defensive sectors continued to dominate, with more than 60% of deals in technology, media and telecoms, business services, financial services and healthcare, we saw more diversified sector appetite, with good deal flow in the education, manufacturing and consumer sectors.
  3. Though the UK continued to lead at 32% share, debt fund focus shifted slightly to continental Europe, with the relative share of UK deals down 5% on last year and corresponding increased shares for France, Germany and the Netherlands. In the UK, Debt funds' market share (vis-à-vis banks) saw a slight reduction to 67% but clearing bank appetite for super senior revolving credit facilities (SSRCFs) remained heavily subdued.
  4. The UK ABL market saw a similar number of deals as for H1 2021 but with most activity in the lower mid-market. Drawn loan book levels for many lenders were finally reported to have edged back to pre-pandemic levels.

 

European Mid-Market Debt Update – H1 2022 Review and H2 Outlook

 

Mid-Market Outlook:

Over the last few months, we have been witnessing increased levels of market volatility and uncertainty. The debt mid-markets are typically less volatile than the syndicated (large cap) markets and we expect the mid-markets to remain open. However, we do expect that deal making will slow down significantly in H2, resulting in reduced deal activity, compared to the record breaking H2 of 2021, as well as an increase in restructurings and (di)stressed refinancings.

Concerns about spiraling inflation and rising costs of debt, combined with ongoing supply chain pressures and high systemic levels of leverage are mounting. We expect lenders to proceed with an increased level of caution and credit scrutiny, requiring high levels of conviction before proceeding with new lending. Several fund lenders that are also active in large cap markets have increased their loan pricing to match yields available in the large cap markets.

To read the entire report please contact Jacco Bouwer, Andreas Stoecklin or Howard P. Lanser.

<span>European Mid-Market Debt Update &ndash; H1 2022 Review and H2 Outlook</span> /en/insights/publications/m-and-a/european-mid-market-debt-update-h1-2022-review-h2-outlook /-/media/kroll-images/insights/feature-images/european-mid-market-debt-update-2022.png 2022-10-25T00:00:00.0000000 publication {1F8452CE-BB02-4541-A705-86D25933687E}{170088C8-830B-4C38-BC1D-E375A677EEDC}{2DCA69D6-B728-4B28-B2B3-DD77B7A7B8FA}{22071366-6F45-4C04-8261-CDFA24749510}{A60877A4-2248-456C-B8DE-728B8C4124FC} {70E25357-B690-49B8-948F-958DAD26DCD4}

Stay Ahead with Kroll

Corporate Finance and Restructuring

Comprehensive investment banking, corporate finance, restructuring and insolvency services to investors, asset managers, companies and lenders.

Private Capital Markets – Debt Advisory

Kroll has extensive experience raising capital for middle-market companies to support a wide range of transactions.

Mergers and Acquisitions (M&A) Advisory

Kroll’s investment banking practice has extensive experience in M&A deal strategy and structuring, capital raising, transaction advisory services and financial sponsor coverage.

Transaction Advisory Services

Kroll’s Transaction Advisory Services platform offers corporate and financial investors with deep accounting and technical expertise, commercial knowledge, industry insight and seamless analytical services throughout the deal continuum.