BY Fraser Tennant
Alternative (non-bank) lending increased rapidly in 2014 and is expected to continue strongly throughout 2015, according to a new report from Deloitte.
The sixth Alternative Lender Deal Tracker – which covers 36 leading alternative lenders and focuses on primary deal flow in the European mid-market – reveals that non-bank lenders were involved in 195 deals in the UK and across mainland Europe in 2014 – a substantial increase on 2013 figures.
Also highlighted in the deal tracker are predictions for the 2015 private debt market. These include: (i) the increased use of direct lending funds by smaller mid-market private equity and leveraged corporates; (ii) an increasing interest from direct lenders in mainland Europe and increasing numbers of private debt funds opening up local offices; and (iii) a continued imbalance of supply and demand for liquidity will keep pressure on pricing and structures and favour borrowers in the mid-market.
Overall, the alternative lending outlook for 2015 is very strong, says Deloitte, with the deal tracker estimating that European direct lending funds are looking to raise in excess of €15bn over the next 12 months for private debt strategies.
“With strong year on year growth, 2015 could offer a bumper time for alternative lenders, now firmly established alongside mainstream banks," said Fenton Burgin, head of UK debt advisory at Deloitte. “With increased confidence in the markets and wider funding options, we are seeing a pick-up in M&A activity.”
This pickup in activity is substantiated by the deal tracker, which shows that M&A was the primary reason for just over half of all transactions monitored by Deloitte since 2012.
Offering a note of caution amid the confidence, however, is Floris Hovingh, head of alternative lender coverage at Deloitte. “There is increasing activity in France, Germany and Southern Europe. However, mainland Europe may not embrace direct lenders with the same lightning speed as the UK due to the larger share of family or founder owned businesses, who are intrinsically more risk averse than private equity,” she says.
Deloitte’s Alternative Lender Deal Tracker compiles data and information from the final quarter of 2014.