MidCapMonitor from GCA Altium: Fewer transactions in the German LBO market
Munich, Frankfurt, Zurich ‑Despite strong first half, only 89 LBO financings in 2018 — first decline since 2012. After years of steady growth, the German LBO market has recorded a decline for the first time since the end of the financial crisis. The number of completed transactions fell to 89 last year compared with 103 in 2017 — a drop of almost 15 percent. Alternative financiers, on the other hand, continued their success story undeterred in 2018, defying the general decline in the German LBO market. The market share of debt funds rises to almost 50 percent.
The current MidCapMonitor of the investment bank GCA Altium, which regularly presents leveraged buyout financings with a loan volume of between 20 and 500 million euros, shows for the In 2018 as a whole, debt funds accounted for almost half of the German LBO market: At 35 percent, it has again increased significantly compared with 2017 and now amounts to 48 percent. Of the 89 transactions in 2018, Debt Funds successfully executed 43 transactions. The banks’ market share was still 65 percent in 2017 and has now shrunk to 52 percent with 46 transactions.
The success of alternative financing parties is based on several factors. On the one hand, it can be observed that banks are becoming more risk-averse in individual transactions — especially with cyclical companies. More flexible debt funds fill this gap, securing transactions that would not have been financed with banks — or only much more conservatively. On the other hand, a significantly increased number of debt funds can now provide volumes of EUR 150 million and more per individual transaction, making a complex banking club superfluous. “The time advantage of larger, single-source financings now plays a particularly frequent role in competitive auctions,” comments Johannes Schmittat, Managing Director in GCA Altium’s Frankfurt office. It can also be observed that buy-and-build strategies in particular are being financed via alternative lenders. “The final maturity of the loans, as well as greater flexibility in terms, frees up capital for growth through acquisitions,” says Norbert Schmitz, also a managing director at GCA Altium.
It is also striking that the success of alternative financing parties is not limited to Germany. Across Europe, 219 LBO transactions were financed by debt funds last year. “Compared to 2017, that’s another 22 percent increase,” says Norbert Schmitz. However, Q4 saw the first significant quarter-on-quarter decline of 14 transactions (down 23 percent). In addition to Germany with 43 transactions, alternative financing was also used intensively in the UK (67 transactions) and France (48 transactions).
Overall, GCA Altium does not expect banks to regain lost market share in the near future. On the contrary, a further increase in alternative financing is expected in 2019.
On the banking side, Commerzbank continued its successful first half of the year, ranking first for 2018 as a whole with 13 transactions.
Unicredit (10) was able to defend its 2nd place, whereas last year’s market leader SEB (9) has to share 3rd place with Bayern LB (9). It is noteworthy here that the number of transactions financed by banks recorded a decrease of 32 percent and, at 46 in 2018, is significantly below the level of 2017 (68).
Even though the London large-cap and high-yield market faced fierce headwinds for low margins and very borrower-friendly terms several times in 2018, GCA Altium did not see any impact on the German LBO market. “Due to the continued extremely competitive environment between banks and debt funds, we expect stable conditions in the short term,” adds Norbert Schmitz.
About GCA Altium
GCA Altium is the European division of GCA. The global investment bank provides strategic M&A as well as capital markets advisory services to growth companies and market leaders. GCA operates globally with over 400 experts in 18 locations in the US, Asia and Europe. Built by the people who run the business, GCA specializes in deals that require commitment, an unbiased view, expertise and unique networks. www.gcaaltium.com