Debt transactions with non-bank lenders in the UK and Europe almost doubled year on year, according to the Deloitte Alternative Lender Deal Tracker published on Tuesday.
Deloitte, a professional services firm, compiles data and information on a confidential basis from over 33 subscribing alternative lenders on a quarterly basis. The company’s research tracks primary mid-market deals across Europe with up to EUR350m of debt.
According to the business advisory firm, alternative lenders recorded 34 deals in the UK and Europe for the first quarter of this year, in comparison to 18 in the first quarter last year, which equates to a year on year increase of 89% in deal volume. Of this first quarter increase, 50% of the deal volume was attributed to the UK, while in the rest of Europe it was 120%.
The Deloitte Alternative Lender Deal Tracker also indicates that the UK continues to be the largest market for alternative lenders, with 47% of these transactions, France is next with 25%, while Germany’s market is 11%.
Head of UK Debt Advisory at Deloitte, Fenton Burgin, stated: “We expect year on year increases to continue, reflecting a move towards a US model in the European mid-market. In the US, banks finance less than a fifth of mid-market business capital; in Europe, over the last five years, we operated a full 180 degrees from this scenario, with banks providing the majority of debt capital.
“The transformation from a bank driven model to one dominated by funds in the US accelerated in the late ’90’s but took over 15 years to reach current levels. The pace of change in Europe will be far more rapid, driven by a combination of ultra-low interest rates combined with high levels of newly raised institutional capital keen for mid-market investment opportunities.”
Burgin added: “With a number of the larger alternative lenders in 2014 being able to raise debt against their equity, they are now able to provide non-amortising ‘term loan B’ debt structures at very close to bank debt pricing. Meanwhile, unitranche funding remains significant combining senior and subordinated debt into one instrument. The unitranche structure was dominant in 44% of deals in the UK, while used in 37% of European deals, over the past six quarters.”