European non-bank lending transactions rose by 7% to 79 deals in the first quarter of this year, according to Deloitte’s latest Alternative Lender Deal Tracker.
In its report, the Big Four auditor outlines a series of factors that have contributed to this fertile climate:
Those trends, says Deloitte, are “likely to add further weight towards an increasingly fund-led environment”.
The auditor points out that it has detected “an increased interest from family and founder-owned businesses looking for growth capital with the objective to minimise the need for equity funding”.
Those firms, it notes, are waking up to the new world that sits “in between bank-debt and private-equity money, and [are starting] to see the advantages of using alternative capital as a tool for transformational growth, which was not within reach previously”.
Deloitte head of UK debt advisory Fenton Burgin said: “Non-bank lending is moving beyond the more mature UK market into Europe, boosted by continued growth in the European economy.
“Despite political uncertainty, global equity markets stand at an all-time high. This, in turn, is driving investors to be in a ‘risk-on’ mode, keenly searching for yield.
He added: “As the loan markets currently have a supply that outstrips demand, investors will find the backing they need.”
Burgin’s Deloitte colleague, Floris Hovingh, head of alternative capital solutions, said: “The ECB issued its final guidelines on leveraged lending in Europe, restricting banks to completing deals at over six times adjusted leverage, in line with US regulation.
“While this is only relevant for a smaller part of the leveraged loan market, it gives a clear signal of the direction of travel.”
He added: “Regulators want to discourage banks from taking on ‘equity-like’ risks, creating a gap for alternative capital providers to provide products that fall between debt and equity.”