deloitte alternative lender deal tracker · 2020. 5. 17. · deloitte alternative lender deal...

Deloitte Alternative Lender Deal Tracker

Focussed on primary deal flow in the European mid market

December 2014

For future copies of this publication, please sign-up via our link at Alternative Lender Deal Tracker

https://www.deloitte.com/view/en_GB/uk/services/corporate-finance/corporate-finance-advisory/96ca420558c83410VgnVCM3000003456f70aRCRD.htm

Deloitte Alternative Lender Deal Tracker Focussed on primary deal flow in the European mid market | 2

Welcome to the third issue of the Deloitte Alternative Lender Deal Tracker (the Netherlands edition) that now covers 35 leading

alternative lenders with whom Deloitte is tracking primary mid-market deals across Europe with up to €350m of debt.

The number of deals covered has increased to over 301 transactions over the past 24 months.

Mid market alternative lending across Europe has continued to grow in 2014 with an impressive 109% year on year increase in

Q3 deal flow compared to Q3 2013. This quarter has set a new record of 73 deals.

The outlook for 2015 remains very strong with Deloitte estimating European direct lending funds looking to raise in excess of

€15bn in the next 12 months for private debt strategy.

As with previous editions we have included an alternative lender “101” guide. We have also included the key outputs of the

Deloitte Q3 2014 CFO survey.

Season's Greetings on behalf of Deloitte’s Debt Advisory team

Deloitte Alternative Lender Deal Tracker

Important Notice

Disclaimer

Deloitte (“Deloitte”) treats survey responses with professional care. Responses provided by the participants of the survey are included within the Deloitte Alternative Lender tracker and distributed

free of charge to survey participants only. Please ensure, in providing this information, that you do not breach any existing confidentiality arrangements you may have entered into. Please note that Deloitte may also use the survey data for other purposes. Accordingly, information derived from the

responses to this Survey may be shared by us with other companies. We are not responsible for the subsequent use made of such information by such companies or for any further disclosure they might make. Deloitte has no liability for any information supplied to Deloitte in breach of any existing

confidentiality agreement.

This Deal Tracker ('the Deal Tracker') has been prepared by Deloitte with input from participants to the Deal Tracker. As such it is the property of Deloitte.

Recipients of the Deal Tracker should not assume that the Deal Tracker is appropriate for their purposes. In the absence of formal contractual agreement to the contrary, Deloitte expressly disclaim any responsibility to you, or any other party who gains access to the Deal Tracker. Any

form of disclosure, distribution, copying, reference to, or use of this Deal Tracker or the information in it or in any attachments is strictly prohibited and may be unlawful. If you have received this Deal Tracker in error, please notify Deloitte, delete the Deal Tracker and destroy any copies of it.

For the avoidance of doubt, in the absence of formal contractual agreement to the contrary, neither Deloitte nor their partners, principals, members, owners, directors, staff and agents and in all cases any predecessor, successor or assignees shall be liable for losses, damages, costs or expenses

arising from or in any way connected with your use of the Deal Tracker.

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited ("DTTL"), a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and

independent entity. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms. Deloitte is the United Kingdom member firm of DTTL.

© 2014 Deloitte Touche Tohmatsu Limited. All rights reserved.

In this issue

Deloitte Alternative Lender Deal Tracker 2

Key Trends in the alternative lending market 3

Alternative lenders increasingly targeting deals in Western Europe 4

Alternative lenders continue to increase their deal flow … 5

Results from Deloitte’s CFO survey, Q3 2014 6

Alternative lender “101” guide 7

Deloitte Debt Advisory Team 8

Debt Advisory Credentials 10

Floris HovinghDirector – Head of Alternative Lender Coverage

Tel: +44 (0) 20 7007 4754

E-mail: [email protected]

Fenton BurginPartner - Co Head Debt Advisory

Tel: +44 (0) 20 7303 3986


Karel KnollSenior Manager – Debt Advisory

Tel: +31 (0) 88 288 4483


Alexander OlgersPartner - Head Debt Advisory

Tel: +31 (0) 88 288 6315


Nedim MusicAssistant Director – Alternative Lender Coverage

Tel: +44 (0) 20 7303 4429


Willem ReddingiusManager – Debt Advisory

Tel: +31 (0) 88 288 5847


Thomas SchoutenSenior Consultant – Debt Advisory

Tel: +31 (0) 88 288 7926



Key Trends – General

• This year has seen a number of high profile alternative lenders raising additional capital. Deloitte estimates that European direct

lending funds currently have in excess of €45bn of committed capital dedicated to private debt and who are looking to raise in

excess of €15bn in the next 12 months.

• The European alternative lender market’s growth has accelerated in 2014. The Deal Tracker records a 109% year on year increase

in Q3 deal flow compared to 2013.

• We have recorded 301 transactions completed by 35 alternative lenders in our survey since October 2012, with 18 countries now

reporting transactions. In Q3 63% transactions were outside UK compared to 29% in Q3 2013.

• M&A continues to be the strongest driver of alternative lender transactions.

• Whilst there is still positive sentiment, European markets have cooled down in Q3, directly impacted by the volatility witnessed in the

HYB and equity markets in October this year.

• A number of transactions in the European markets are reported to have witnessed push back from investors which resulted in market

flexes on structure and pricing.

• Supply side dynamics against a backdrop of low M&A volumes have resulted in some European borrowers securing lower pricing

than comparable US companies.

• In response to this Alternative Lender liquidity directed towards private companies, European banks are increasingly offering greater

flexibility including non amortising TLB structures as they respond to market pressures from alternative lenders.

Key Trends – Dutch market

• We observe a certain hesitation from the Dutch PE players towards alternative lending and relatively low volumes, driven by

unfamiliarity with the product and relative competitive pricing for bank financing in the mid-market

• However given the actual and expected high activity in M&A, for 2015 we expect that an increasing number of Dutch transactions will

be supported by alternative lenders

• Next to Private Equity, it is expected that Privately owned mid-market businesses will find alternative lender funding solutions

Key trends in the alternative lending market

Alternative lender outlook

Based on our analysis, we predict a number of key European market

developments for 2015, specifically:

• The number of alternative lender transactions will continue to increase,

• More debt funds will be able to attract leverage at fund level which will

enable them to provide lower pricing

• The hold size of loans by funds will continue to increase

• Increased TLB and cov loose issuance in the mid-market

• More funds targeting the smaller end of the mid-market

• Increased alternative lender deal origination in the European market

• Stronger collaboration between banks and alternative lenders

• A number of larger funds being able to provide an underwritten option

13 8 1325 21

13 1527

1010

1910

30

22 19

46

0

10

20

30

40

50

60

70

80

Q4/12 Q1/13 Q2/13 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14

Number of deals completed

UK Euro

109% increase in deal flow Q3’14 compared to Q3’13


Alternative lenders increasingly targeting deals in Western Europe

• UK, France and Germany cover 82% of the deal flow.

• 45% of the transactions were in the UK, 25% in France and 12% in Germany.

• Out of the 35 lenders surveyed only 1 lender has not completed a deal yet.

• Unitranche product (47% of deals) is more popular in UK, while on the

continent the senior product (41%) is dominant.

• In the UK 39% of transactions were related to LBO financing, almost in line with number of

deals in Europe (43%).

• 15% of deals in UK relate to dividend recaps compared to only 7% in Europe.

45%

25%

12%

18%

UK France Germany Rest of Europe

Deal volume main geographies

6

7

135

37

75

2

10

5

3 41

5

6

1

0%

10%

20%

30%

40%

50%

60%

Q4/12 Q1/13 Q2/13 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14

Senior Unitranche Other*

Structures (UK & Europe)

0%

10%

20%

30%

40%

50%

60%

70%

Q4/12 Q1/13 Q2/13 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14

M&A Refinancing Other*

Deal purpose (UK & Europe)

* Other includes 2nd lien, Mezzanine and PIK / other. * Other includes dividend recapitalisation and growth capital.

1

1

1

1


Alternative lenders continue to increase their deal flow…

Alternative Lender Deal Tracker

• Covers 35 leading alternative

lenders, who have participated

in 135 UK and 166 European

mid market deals in the last 8

quarters.

• Only primary mid market UK

and European deals with debt

up to £300m or €350m are

included in the survey.

• Q3 2014 had the highest deal

flow with 73 deals.

Deal purpose

• The majority of the deals are

LBO related, with UK

accounted for 39% and EU

43% of Euro deals being used

to fund a buy out.

• 24% of UK and 28% of Euro

deals surveyed related to

refinancing, while only 15% of

UK and 7% of Euro related to

a divided recap.

• Of the 301 deals, 66 deals did

not involve a private equity

sponsor.

Survey participants

• The most active alternative

lender participated in 42

transactions.

• The top 3 lenders by deal flow

have participated in 30% of

the transactions included in

our survey.

• Only 24% of transactions

involved multiple alternative

lenders.

• 20% of the participating funds

have completed 2 or less

transactions since the survey

began.

Structures

• “Unitranche” is the dominant

structure, with (47% of UK

and 37% of Euro) of the

transactions classified as a

Unitranche structure.

• Alternative lenders are mainly

competing with banks, as 79%

of the transactions are

structured as a first lien

structure (Senior /

Unitranche).

• Subordinated structures

represent only 21% of the

transactions.

• The mezzanine product is

more popular outside UK.

• Second lien volume remained

low.

…providing bespoke structures for mainly “event financing” situations

0

5

10

15

20

25

30

35

40

45

#1

#2

#3

#4

#5

#6

#7

#8

#9

#1

0#

11

#1

2#

13

#1

4

#1

5#

16

#1

7

#1

8#

19

#2

0#

21

#2

2

#2

3#

24

#2

5

#2

6#

27

#2

8#

29

#3

0

#3

1#

32

#3

3

#3

4#

35

Number of completed per lender

UK Euro

39,3%

14,8%

24,4%

6,7%

14,8%

43,4%

7,2%

28,3%

8,4%12,7%

0,0%

10,0%

20,0%

30,0%

40,0%

50,0%

LBO Dividendrecap

Refinancing Bolt-on M&A Growthcapital

Deal purpose overview

UK Euro

32,6%

47,2%

4,9%

12,5%

2,8%

40,8%

36,8%

0,6%

16,1%

5,7%

0,0%

10,0%

20,0%

30,0%

40,0%

50,0%

Senior Unitranche Second lien Mezz PIK/other

Deal structure overview

UK Euro

79% first lien

109% increase in deal

flow Q3’14

compared to

Q3’13

Uneven

distribution with

top 3 funds

participating in

30% of the

transactions.

49% of the

transactions

involve M&A.

79% of the

transactions are

structured as

first lien Senior

or Unitranche.

30% of the deals

* For the purpose of the deal tracker, we classify senior only deals with pricing

L + 650bps or above as Unitranche. Pricing below this hurdle is classified as senior debt

138

13

2521

13 15

275

5

10

317

9 8

18

3

2

2

3

6

47

10

74

7

9 4

18

0

10

20

30

40

50

60

70

80

Q4/12 Q1/13 Q2/13 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14

Number of deals completed

UK France Germany Other

2

3


Chart 3. Change in cash flows over the next 12 months

% of CFOs who expect their companies’ operating or free cash flows to increase/decrease over the next 12 months

Chart 1. Business confidence

Net % of CFOs who are more optimistic about the financial prospects for their company now than three months ago

Results from Deloitte’s CFO survey, Q3 2014

Great optimism Easy credit

The downward trend of business confidence

continued in the third quarter of 2014 and came

in at 13 percent.

In the UK , confidence deteriorated at a slower

pace and stood at 15 percent.

North American CFOs’ business confidence

increased again to 32 percent.

Credit is still perceived as both available and

cheap.

Financing conditions are easy these days – a

big contrast to the same quarter two years

ago.

The perception of economic uncertainty rose

for the first time since the second quarter of

2013, mainly due to the decelerated recovery

of the Eurozone economy and geopolitical

tensions.

Only 22 percent of the panelists rate the level

of uncertainty facing their business as normal

or lower than normal – versus 44 percent last

quarter.

The percentage of CFOs who expect their

cash flow to increase, decreased from 81

percent last quarter to 71 percent now.

The number of CFOs expecting a decline in

cash flow now stands at 10 percent (from 3

percent), while 19 percent (up from 17

percent) expect cash flow to remain

unchanged.

Although less attractive than in the previous

quarter, corporate debt is still perceived as the

most favored source of funding, followed by

bank borrowing.

Equity is seen as least attractive.

The percentage of CFOs who believe that now

is a good time to be taking greater balance-

sheet-related risks increased for the sixth

consecutive quarter and now stands at 45

percent.

This compares to risk appetite of CFOs in the

UK , where risk appetite reached a seven-year

high at 72 percent.

Chart 2. Uncertainty

% of CFOs who rate the external financial and economic uncertainty facing their business as normal, or below normal

Chart 4. Cost and availability of credit

Net % of CFOs reporting that funding for corporates is cheap or expensive, and funding is easily available or hard to get

Chart 5. Favoured source of corporate funding

Net % of CFOs reporting the following sources of funding as (un)attractive

Chart 6. Risk appetite

% of CFOs reporting that now is a good time to be taking greater balance sheet-related risks

Note: The 2014 Q3 survey took place between 23 September 2014 and 10 October 2014. A total of 31 corporate CFOs completed our survey, representing a

net turnover per company of approximately EUR 1.9 billion. The responding companies can be categorized as follows: less than 100 million (19%), 100-499

million (13%), 500-999 million (32%), 1-4.9 billion (23%), more than 5 billion (9%), and unknown (3%).


Who are the alternative lenders and why are they becoming more relevant?

Alternative lenders consist of a wide range of non-bank institutions with different strategies including

private debt, mezzanine, opportunity and distressed debt.

These institutions range from larger asset managers diversifying into alternative debt to smaller funds

newly set up by ex-investment professionals. Most of the funds have structures comparable to those

seen in the private equity industry with a 3-5 year investment period and a 10 year life with extensions

options. The limited partners in the debt funds are typically insurance, pension, private wealth, banks or

sovereign wealth funds.

Over the last two years a significant number of new funds have been raised in Europe. Increased

supply of alternative lender capital has helped to increase the flexibility and optionality for borrowers.

Key differences to bank lenders?

• Access to non amortising, bullet structures.

• Ability to provide more structural flexibility (covenants, headroom, cash sweep, dividends,

portability, etc.).

• Access to debt across the capital structure via senior, second lien, unitranche, mezzanine and

quasi equity.

• Increased speed of execution, short credit processes and access to decision makers.

• Potentially larger hold sizes for leveraged loans (€30m up to €200m).

• Deal teams of funds will continue to monitor the asset over the life of the loan.

However,

• Funds are not able to provide clearing facilities and ancillaries.

• Funds will target a higher yield for the increased flexibility provided.

• Untested behaviour of funds throughout the cycle.

Alternative lender “101” guide

What type of alternative lenders are active in the European mid market?

Unitranche structure compared to traditional LBO structures

Type of fund Type of loans Typical yield requirement

Number of

funds targeting

the European

mid market

Leveraged private debt funds Senior / Unitranche loans Below L + 7.0% < 10

Unlevered private debt funds Senior / Unitranche loans Above L + 7.0% > 40

Mezzanine funds Subordinated loans Coupon of 10% -15% > 30

Quasi equity funds Senior and subordinated loans Target IRR of 15% -20% > 30

Special situations / distressed funds Senior and subordinated loans Target IRR of 10% -20% > 30

Hedge funds Senior and subordinated loans Varies with risk profile > 40

Three key questions to ask when dealing with alternative lenders:

1. What type of fund am I dealing with and what strategy do they employ?

2. What is the track record, sustainability of the platform, and reputation of the fund and the

individuals working within the fund?

3. What is the current stage of the fund’s lifecycle?

0x

2x

4x

6x

8x

10x

Senior Unitranche Senior & Mezzanine

EV m

ult

iple

of

EBIT

DA

Senior Debt Unitranche Mezzanine Equity

First lien First lien First lien

Subordinated

Key differences of Unitranche compared to traditional LBO structures

• Unitranche debt is senior plus mezzanine debt combined into one tranche with a blended pricing.

• Banks typically require the senior debt to carry 30 – 40% amortisation whereas Unitranche has a

bullet maturity.

• Unitranche increases the total debt capacity to c. 5 – 5.5x EBITDA without having the complexity of

a subordinated mezzanine tranche.

UPDATE


Deloitte Debt Advisory Team

Deloitte Debt Advisory - entrance to global liquidity and local execution resources

UK & NL Senior team

Fenton BurginPartner+44 (0) 20 7303 [email protected]

Chris Skinner Partner+44 (0) 20 7303 [email protected]

Nigel Birkett Partner+44 (0) 16 1455 [email protected]

James Douglas Partner+44 (0) 20 7007 [email protected]

John Gregson Partner+44 (0) 20 7007 [email protected]

Floris Hovingh Head of Alternative Debt+44 (0) 20 7007 [email protected]

Alternative lender coverage

Nedim MusicAssistant Director+44 (0) 20 7303 [email protected]

Henry Pearson Manager+44 (0) 20 7303 [email protected]

USA

John Deering

Managing Director

+1 704 333 0574

[email protected]

Alexander OlgersPartner++31 (0) 88 288 6315 [email protected]

Deloitte Debt Advisory NL is your national and principal partner and empowers global access to funding recourses

Deloitte Debt Advisory UK is our and your partner with highest expertise, joint execution power and access to UK markets


Deloitte Debt Advisory Team

Independent Debt Advisor with an unrivalled global reach Typical Debt Advisory moments

Integral part of Deloitte

Corporate Finance

• Independent advice and world class execution

resource across the full spectrum of debt markets

and instruments

Unrivalled global reach • One of the leading teams in the Netherlands with a

global network of Debt Advisory professionals

spanning 32 countries, giving us unrivalled global

reach

Extensive network of

contacts within

(inter)national financiers

• Our team of high profile senior ex-bankers and

career debt advisors provides in-depth knowledge

and understanding of the debt markets,

underpinned by an extensive network of contacts

within (inter)national financiers

Integrated solutions • We provide advice to borrowers across the full

spectrum of debt markets and instruments; a.o.

strategic analysis of optimum capital structures and

available sources of finance

• We work fully integrated with our M&A, tax, audit

and consulting teams, realising

tailor-made, comprehensive and integrated debt

solutions

Completely independent • Because we are completely independent from

financiers, our objectives are always fully

transparent and aligned with those of our clients

Acquisitions, disposals &

mergers

• Acquisition financing

• Merger financing

• Stapled financing

Growth- and refinancing • Maturing debt facilities

• Syndicated borrowings

• Asset based financing

• Off balance sheet financing

Restructurings and

renegotiations

• Covenant waiver and reset negotiations

• Trading downturns

• Credit rating downgrades

• Facility extensions and amendments

• New money requests and debt buy backs

Our clients • Our clients include public and private companies,

private equity firms and their investee companies

and financial institutions

Alternative Lending

Market Leader • Deloitte Debt Advisory is the market leader for mid

market alternative lender transactions, having

completed over 25 alternative lender transactions in

UK since 2012

• We provided unparalleled access to global liquidity

through our dedicated global Alternative Lender

coverage teams in key financial centres


Recent Debt Advisory Credentials 2014N

L D

eb

t A

dv

iso

ry d

eals

HumaresRefinancing

VreugdenhilRefinancing

BoelsFinancing

Triacta/VinginoAcquisition finance

WestCord HotelsRefinancing

AttemaRefinancing

Sele

cti

on

of

UK

Deb

t A

dv

iso

ry D

eals

EnergystAdvisory

HgCapital

Refinancing

Mitie plc

Refinancing

Tarsus Group plcAmend & Extend

ChilternAcquisition financing

EquistoneAcquisition financing

WH Smith PlcRefinancing

Rutland PartnersDividend recap

BridgepointRefinancing

InflexionRefinancing

Baxters Food GroupRefinancing

Shanks GroupRefinancing & retail bond

HgCapitalRefinancing

Cape PlcRefinancing

DMGT PlcRefinancing

HgCapital

Refinancing

HgCapitalAcquisition financing

Premier Farnell PlcRefinancing

HgCapitalAcquisition financing

Lavendon Group PlcRefinancing

EquistoneAcquisition financing

KeepmoatStaple financing


Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, and its network firms, each of which is a legally separate and independent entity.

Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.

This publication has been written in general terms and therefore cannot be relied on to cover specific situations; application of the principles set out will depend upon the particular circumstances involved and

we recommend that you obtain professional advice before acting or refraining from acting on any of the contents of this publication. Deloitte would be pleased to advise readers on how to apply the principles

set out in this publication to their specific circumstances. Deloitte accepts no duty of care or liability for any loss occasioned to any person acting or refraining from action as a result of any material in this

publication.

© 2014 Deloitte. All rights reserved.

Designed and produced by The Creative Studio at Deloitte, London. 33178A

deloitte alternative lender deal tracker · 2020. 5. 17. · deloitte alternative lender deal...

Documents