MidCapMonitor from GCA Altium: The debt funds wave rolls on

Munich, Frank­furt, Zurich — Alter­na­tive finan­ciers conti­nue their success story in 2018. The latest MidCap­Mo­ni­tor by invest­ment bank GCA Altium, which regu­larly pres­ents lever­a­ged buyout finan­cings with loan volu­mes between €20 million and €500 million, shows that debt funds accoun­ted for 48 percent of the LBO market in the first half of 2018. 46 LBO finan­cings in the first half of 2018 mark a new record.

After twelve tran­sac­tions in the first half of 2017, the Debt Funds have alre­ady successfully imple­men­ted 22 tran­sac­tions in the first half of 2018. At this time in 2017, the banks’ market share was still 70 percent and has now shrunk to 52 percent.

The success of alter­na­tive finan­cing parties is based on seve­ral factors. First, debt funds respon­ded a good year ago and incre­asingly star­ted to offer more favorable struc­tures invol­ving lower-rate senior tran­ches held by banks. “In addi­tion, we are incre­asingly seeing debt fund tran­sac­tions that banks would not have done. This is a very posi­tive deve­lo­p­ment, as addi­tio­nal liqui­dity is being made available,” comm­ents Johan­nes Schmit­tat, Mana­ging Direc­tor in GCA Altium’s Frank­furt office.

It is also noti­ceable that buy-and-build stra­te­gies in parti­cu­lar are prefer­a­bly finan­ced with debt funds. “Private equity inves­tors welcome the speed of imple­men­ta­tion and the redu­ced need for coor­di­na­tion with usually only one party compared to larger banking clubs,” says Norbert Schmitz, also a mana­ging direc­tor at GCA Altium. Over­all, GCA Altium does not expect banks to regain lost market share in the near future.

The over­all size of the German LBO market remains on track for a record 46 tran­sac­tions (up from 41 tran­sac­tions in the first half of 2017). The most active private equity houses were Equis­tone and Nordic Capi­tal, with three tran­sac­tions each.

On the banking side, Commerz­bank has alre­ady imple­men­ted eight tran­sac­tions this year, but on a twelve-month basis (16 tran­sac­tions) it still ranks third behind SEB (20) and Unicre­dit (19). — Even though there were head­winds in the London large cap market towards the end of the second quar­ter for the first time in a long time against the very low margins and very borrower-friendly terms, GCA Altium did not notice any impact on the German LBO market. “Due to the contin­ued extre­mely compe­ti­tive envi­ron­ment between banks and debt funds, we do not expect condi­ti­ons to dete­rio­rate in the short term,” adds Norbert Schmitz.

The over­all Euro­pean market for unitran­che finan­cing by debt funds also reached a new record high with 109 tran­sac­tions in the first half of 2018, excee­ding the previous year’s volume by more than 47 percent. In addi­tion to Germany with 22 tran­sac­tions, Unitran­ches have also been used inten­si­vely in the UK (33 tran­sac­tions) and France (23 transactions).

About GCA Altium
GCA Altium is the Euro­pean divi­sion of GCA. The global invest­ment bank provi­des stra­te­gic M&A as well as capi­tal markets advi­sory services to growth compa­nies and market leaders. GCA opera­tes globally with over 400 experts in 15 loca­ti­ons in the US, Asia and Europe. Built by the people who run the busi­ness, GCA specia­li­zes in deals that require commit­ment, an unbi­a­sed view, exper­tise and unique networks. www.gcaaltium.com