European alternative lending market deal activity stable in 2016

04 April 2017 4 min. read
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The alternative lending market was relatively stable in Europe over 2016, up 2% on the previous year to a total of 267 deals. Deal activity in the UK fell slightly, while Germany and France remained relatively stable. The market was largely tapped to finance M&A activity, with the TMT and health and life sciences categories the biggest destinations of funds over the past 12 months.

The alternative lending market has in recent years broken records across Europe, as more and more providers and platforms appeared to provide lending solutions to a variety of groups. The market has, in part, developed from advances in technology that make online platforms a convenient possibility, but also by the current low-interest rate environment, in which alternative lenders offer higher returns on capital.

Deloitte’s latest ‘Alternative Lenders: UK Deal Flow Bounces Back?’ report, which covers Q4 2016 and the preceding moths, explores current trends affecting the wider alternative lending market in Europe. The consulting firm's report is based on activity across 55 of Europe’s largest alternative lending platforms.

Q4 2016 deals completed

Uncertainty in a range of quarters was the default for 2016, with companies and global powers seeking to digested the geopolitical consequences of Brexit result in the UK and the rise of populism in the US with the new Trump administration, and while global scale economic changes around trade, the growth of emerging economies and commodity prices continued.

The effect on the alternative lender market during 2016 in the UK was a period of wait-and-see, before a large burst of activity at the end of 2016, during which deal volume increased by 48% on the previous quarter for a total deal count of 31 in the UK; while the UK and the rest of Europe as a whole counted 68 deals.

Alternative lender deal tracker

In terms of complete deals, France saw considerably decreased activity during Q4 2016, following strong levels of activity in the previous three quarters. Germany saw relatively muted activity following a slow Q1. In terms of market performance over the past two years, activity has been relatively stable outside of dips in the first quarters of 2015 and 2016.

In total, 2016 saw 267 deals, up slightly (2%) on 2015. That the deal activity was close to the year previous was in part the result of increased penetration within the rest of Europe (up 13%) offsetting a similar decline in the UK.

Deal purpose over past 12 months

The purpose of deals is relatively similar in nature between those done in the UK and those done across the rest of Europe. Bolt-on MYA was cited by 11% of respondents in the UK and 13% of respondents in the rest of Europe, while in the UK 37% of deals were for … and 43% of deals in the rest of Europe.

Comparison of deals for last three years

Deal activity in various regions saw considerable differences in overall growth over the past three years. In the UK deal levels increased from just over 80 in 2014 to close to 100 last year, at 8% CAGR over the two-year period – interestingly deal volume was down on 2015 when more than 110 deals took place.

The fastest growing region by far over the two-year period was the Netherlands where deal volume increased from eight in 2014 to 19 in 2016, an increase of 54%. Germany and France have remained relatively stable, noting CARG of 4% and 3% respectively.

Total deals across industries

In terms of the destination for the respective alternative funding over the past 12 months, TMT was the largest area of activity in the UK, counting 19% of total deals, and 16% of total deals in Europe; health and life science took the number two spot in the UK, on 11% of total deals, and first in Europe, at 18% of total deals. Financial services saw 16% of total deals in the UK and 12% of total deals in the rest of Europe. Other areas that saw strong deal activity include leisure at 8% in the UK and 13% across the rest of Europe.

Regarding the continued interest of investors and lenders in alternative finance across Europe, Fenton Burgin, Head of UK Debt Advisory at Deloitte, comments, “Non-bank lending held up last year, just beating 2015’s total of 263 deals. This despite a decrease in European M&A volumes around the time of EU Referendum. Today, the divergence between the US and European economies, especially with the continued quantitative easing programme in Europe, is creating ideal conditions for borrowers here. The next two years should be strong for the private lenders with continued liquidity and valuation levels reaching 9.6 x EDITDA for the first time in ten years. With high levels of competition for good assets, the flexible financing offered by non-bank lenders will attract private equity sponsors.