Direct lending fell by 29% in Europe for the first half of 2020

Non-bank or direct lending saw a total of 140 European deals in the first half of 2020, compared to 197 for the same period last year, a decrease of 29%. The latest Alternative Lender Deal Tracker from Deloitte showed deal count dramatically slowing as the COVID-19 pandemic impacted the private debt markets, especially in Q2 when the volume of deals fell by 58%, compared to the same period in 2019.

The majority of the deals were M&A related with 67% of the European deals being used to fund a buy-out. Out of the 447 deals in the last 12 months, 83 deals did not involve a private equity sponsor, which is in line with the previous year.

Deloitte’s deal tracker also revealed that within the UK, business services (including Professional Services and the Infrastructure industries) have been the dominant user of Alternative Lending accounting for 29% of the total deals, followed by the technology, media and telecommunications sector (TMT) at 19%.

Floris Hovingh, head of Alternative Capital Solutions at Deloitte, commented: “One impact of the COVID-19 pandemic has been for direct lenders to hit the pause button during the second quarter of this year. However, they have become very active again in the second half of the year as pressure on deployment catches up and M&A activity rises.

Hovingh continued: “The lending market has become somewhat binary. Companies that have proven to be resilient in the pandemic are much sought after and commercial terms offered are not far off from pre-pandemic times. In contrast, impacted sectors have of course been given a wide berth.

“As predicted banks have been focussed on their existing portfolio during the turmoil. This has resulted in companies now seriously considering direct lenders as a refinancing option that had previously not been the case.”

Chris Skinner, head of the Debt Advisory team at Deloitte, concluded: “CEOs and CFOs need every option at their disposal to make sure they navigate the current uncertainty in the market. Direct lenders are a key part of that ever-expanding tool kit, perhaps even more so now than ever.”