New data has revealed that alternative lenders claimed a significant share of the UK M&A market in 2023, as the tough financing conditions many dealmakers experienced last year led to a significant shift in the type of external debt used to finance acquisitions.
Experian Market IQ’s 2023 M&A report found that, in terms of the volume of UK deals funded by newly-agreed debt, HSBC was the leading provider, with 56 deals. However, reflecting the growing importance of alternative lenders to UK M&A, the next two leading providers were non-bank lenders, with ThinCats funding 41 deals and Triple Point Private Credit funding 26.
ThinCats was also the leading provider of debt for London-based M&A deals (12 deals), outstripping HSBC (nine deals) and Triple Point Private Credit (eight deals).
Experian data showed that UK deal volume was down 12 per cent last year (6,426 deals) while value fell 21 per cent (£194 billion – the lowest value since Experian’s records began in 2003). Acquisitions funded by newly-agreed debt were down 20 per cent, which Experian attributed to higher financing costs, while private equity-backed deals were down by around 10 per cent.
Amid diminishing M&A activity, the emergence of alternative lenders highlights how would-be dealmakers are increasingly choosing (or being forced) to seek financing away from traditional banks and private equity investors (despite historically high levels of private equity capital) in order to pursue their acquisition strategies.
This was illustrated even more starkly by a ThinCats analysis of the underlying data, which demonstrated how significant the shift away from traditional bank financing has been over recent years. According to the analysis, the UK’s big five banks (NatWest, Barclays, HSBC, Lloyds and Standard Chartered) saw their collective market share fall to 28 per cent last year, which ThinCats said was down from 63 per cent in 2014.
Over the same period, ThinCats reported that alternative lenders have increased their market share dramatically, from just two per cent in 2014 to 28 per cent last year. It is important to note, however, that hopeful buyers should begin to find it easier to access bank financing if the UK’s interest rates fall, while economic improvement could also tempt private equity firms to begin deploying their cash reserves more freely.
Commenting on the data, ThinCats Chief Executive Amany Attia said: “The report reveals that businesses remained cautious about taking on additional borrowing to fund M&A transactions during 2023 with volumes down 20 per cent on 2022.”
“This is no surprise given the relatively weak economic backdrop and the rising costs of borrowing during the year, although it’s likely that interest rates have now peaked.”
Read more about the alternative financing options available for businesses looking to make acquisitions
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