EMEA Middle Market 2022 Wrap
Reorg’s EMEA Middle Market team has published a Mid Market wrap that highlights debt capital markets, direct lending, debt and leverage data and more through 2022.
This year, disruptions in the debt capital market helped shine a brighter light on the expanding potential for private debt. Despite economic headwinds and uncertainty for M&A, direct lenders have sustained dealmaking, adapting and seizing opportunities such as large cap deals, public-to-private transactions, refinancings and add-ons.
“Direct lenders can provide higher visibility and certainty of execution without any caveats. Sponsors are now prioritizing such certainty over other elements that in the past were considered more important.” Leticia Ruenes, managing director and head of Spain at Pemberton, said.
Dry powder available for the asset class has increased 4% year over year amounting to $198.5 billion as of Wednesday, Dec. 14, according to research from Preqin. In 2023, market participants said they expect a slow start and an increase of activity from the second quarter mainly driven by leveraged buyouts.
Key Trends in 2022
One trend from 2022 is the amount of club deals that have arisen to satisfy the increasing average deal size, which is more than $1 billion for reported deals in 2022, according to Preqin. Rather than individual funds being sole underwriters, some sponsors are preferring optionality and a diversification of lenders because of the difficult economic climate.
In the first half of the year, various large direct lenders took a higher amount of debt financing deals and benefited from large cap borrowers’ inability to use a shut leveraged loan market due to macro uncertainties including the war in Ukraine.
In the second half of the year, club deals have allowed direct lenders to remain active, even as capacity declined due to heavy deployment at the start of the year and funds showed caution in a more challenging macro environment.
“Club deals are becoming more and more the norm in Europe and we have experienced this trend in our last recent transactions.” Luis Mayans, partner and deputy head, private debt for Europe at CDPQ, said. “There is an acceptance among lenders that club deals are the way forward.”
He cautioned that in a less certain market “some lenders, which would have done €500 million to €600 million deals six months ago, are now taking tickets a third of that size.”
A club deal structure isn’t yet a practice that all European funds are prepared to embrace. “Europe is about 10 years behind the U.S. in terms of club deals,” Stuart Hawkins, managing director in private credit at Ardian, said.
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