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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
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
E-mail: [email protected]
Karel KnollSenior Manager – Debt Advisory
Tel: +31 (0) 88 288 4483
E-mail: [email protected]
Alexander OlgersPartner - Head Debt Advisory
Tel: +31 (0) 88 288 6315
E-mail: [email protected]
Nedim MusicAssistant Director – Alternative Lender Coverage
Tel: +44 (0) 20 7303 4429
E-mail: [email protected]
Willem ReddingiusManager – Debt Advisory
Tel: +31 (0) 88 288 5847
E-mail: [email protected]
Thomas SchoutenSenior Consultant – Debt Advisory
Tel: +31 (0) 88 288 7926
E-mail: [email protected]
Deloitte Alternative Lender Deal Tracker Focussed on primary deal flow in the European mid market | 3
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
Deloitte Alternative Lender Deal Tracker Focussed on primary deal flow in the European mid market | 4
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
Deloitte Alternative Lender Deal Tracker Focussed on primary deal flow in the European mid market | 5
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
Deloitte Alternative Lender Deal Tracker Focussed on primary deal flow in the European mid market | 6
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%).
Deloitte Alternative Lender Deal Tracker Focussed on primary deal flow in the European mid market | 7
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 Alternative Lender Deal Tracker Focussed on primary deal flow in the European mid market | 8
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
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 Alternative Lender Deal Tracker Focussed on primary deal flow in the European mid market | 9
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
Deloitte Alternative Lender Deal Tracker Focussed on primary deal flow in the European mid market | 10
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 Alternative Lender Deal Tracker Focussed on primary deal flow in the European mid market | 11
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.
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