According to the inaugural European private data insights and outlook report on the direct lending market from KBRA DLD, a division of KBRA Analytics, M&A activity returned in Q4/23 after a slow pipeline for most of the year. Buyouts accounted for 77% of euro volume in Q4/23 and 58% by count. Total leverage for buyouts inched upward for the first three quarters in 2023, then tightened to 4.3x in Q4/23. The regional breakdown in the dataset is broadly reflective of the wider market. The UK is the biggest contributor, with France-based borrowers representing 8% of volume, just behind the 11% posted in the DACH region—Germany (D), Austria (A) and Switzerland (CH).
Although the UK dominates the $1 billion-plus jumbo private financing segment, jumbo loans to borrowers outside the UK are increasing, with six deals notched up for continental businesses in 2023. KBRA DLD has been tracking $1 billion-plus jumbo financings (including add-ons) for European sponsor-backed issuers since the first issuance in 2020. In 2023, direct lenders executed more jumbo deals than in the previous three years combined.
The surge in 2023 was partly driven by volatile markets in 2022 that prompted sponsors to seek financing outside syndicated channels. Direct lenders are expected to continue to take share from liquid credit in 2024 by utilizing their flexibility to offer more bespoke terms and structures, such as portability, and their willingness to finance dividend recaps as private equity firms seek ways to return equity to investors.
