Alternative non-banking lenders are becoming part of the finance mainstream, having participated in 55 UK mid-market debt deals since October 2012.
According to Deloitte’s new Alternative Lender Deal Tracker, 24 of those deals were done in the third quarter of 2013, a significant increase on the seven deals completed in the first quarter of the year.
Deloitte predicts that more deals are on the way as we move into 2014. It estimates that over £10bn has been raised from alternative lenders by funds actively looking to invest in the European mid-market, while another £5bn of additional capital is in the pipeline. Alternative lenders are large institutional investors.
Fenton Burgin, head of UK debt advisory, at Deloitte, comments: “The end of 2013 is showing very strong signs of activity for the alternative lending sector, as its bespoke structures and greater flexibility provide an attractive alternative to traditional leveraged bank lending.
“Ultra-low interest rates have left institutional investors chasing yield and, as a result, the European leveraged finance mid-market is moving towards a US model. There banks hold only around 7% of US leveraged loans, while banks still hold the majority of European leveraged loans.”
Deloitte’s research shows that around half of deals are leveraged buyout related, with only nine deals not involving a private equity owner. Significantly, so called ‘unitranche’ structures, where banks provide only a limited element of the debt, also accounted for almost half of the transactions.
Burgin concludes: “We envisage that alternative lenders will play an increasingly important part of the market as the M&A environment improves significantly next year.”
Sally Percy is editor of The Treasurer