M&A is back. Or not?

There was one big question coming into the event: what would it take for M&A to come back?

For some, especially focusing on the small-medium sized deals, M&A activity is already here. It is a glass half full/half empty story, though. No one is expecting to go back to record levels, but when asked during a panel the audience voted largely that opportunities are in the mid-cap market.

“M&A is not in the same state as it was in 2021, which was probably the highest boom year that we have seen, but if you compare the first six months of 2024 to 2023, M&A is squarely back,” Mattis Poetter, partner and co-CIO at Arcmont told 9fin. “And if I compare the amount of transactions we discuss in our investment committees this year, it's easily double, triple, or more than the same time last year. It is a huge increase in M&A activity.”

Mid-cap activity is moving due to the need to transact and the presence of very active lenders, which are bridging the bid-ask gap. On the larger side of the market, while not much has moved yet, there are expectations for some changes ahead.

“While overall European M&A levels have been muted the past 18 months, we expect deal flow to pick up during the remainder of 2024 as valuation gaps between buyers and sellers narrow,” Taj Sidhu, head of European and Asian private credit at Carlyle told 9fin. “This will further strengthen the opportunity set for private credit managers in the region, supporting the long-term demand for bespoke private credit solutions.”

The cautious optimism of the private credit front was not being felt by private equity players. Some were more blunt than others. “I’m here to tell you everything is not going to be ok,” Scott Kleinman, Apollo co-president said during a session on Wednesday. “The types of PE returns it enjoyed for many years, you know, up to 2022, you’re not going to see that until the pig moves through the python. And that is just the reality of where we are.”

Fundraising play

The name of the game remains clear to all: fundraising is in everybody’s minds.

So far the year has not been brilliant, though. From the beginning of January to the end of May, direct lending funds globally raised $33.1bn, less than a third of the total raised in the first half of 2023, 9fin reported analysing Preqin data.

This year fundraising volume is expected to be less than the $210bn raised in 2023, which was already down from $215bn in 2022, and a record $242bn in 2021.

But big names have flexed their muscles — most notably, with the recent Goldman Sachs Alternatives’ $13.1bn close of West Street Loan Partners V.

This week has showed there is room for more when it comes to funds with track record and specialisation. Kartesia has held the final closing for its second-generation senior debt strategy, Kartesia Senior Opportunities, at €1.8bn, over the initial target of €1.5bn, and 80% larger than the first-generation strategy, which closed at €1bn in March 2021.

Kartesia specialises in small and mid-sized companies financing such as a facility for CDE and Exens Group’s acquisition of Bowen Systems; additional capital for Clearway’s acquisition of Secontec; and a unitranche financing package for Cemedis Group.

Interest rates – an after-thought?

So much was on the agenda this week that the cut of interest rates from ECB — which last year would have been the talk of the town — was met almost as an after-thought.

The first cut in five years was technically a historic move but it was widely telegraphed and not seen as a particularly dramatic change. Thursday afternoon, ECB president Christine Lagarde confirmed the quarter point drop bringing the deposit rate down to 3.75%. She remained focused on making clear the goal of the central bank is to ensure that inflation returns to its 2%, and was tight-lipped on future moves.

With no expectations for cuts in the UK and the US, the market should probably reckon this is the new normal and the era of record low rates is long gone, a lender told 9fin.

“Right now, the European market is expecting some rate cuts but that they will happen gradually and not fall below 2-3%,” Arcmont’s Poetter said. “As such, while rates are still an important piece of the puzzle for private credit, potential cuts are not as much of a focus as they were a few months ago.”

European private credit pipeline

In such a busy week 9fin has been reporting on several closing across Europe. Arcmont, CDPQ, and Macquarie have agreed to a €300m refinancing for Dutch insurance firm Yellow Hive. In what has become a popular move lately, IK Partners divested from the firm into a €505m continuation fund that saw TPG, AlpInvest, and Pantheon step in as lead co-investors.

Arcmont has also provided a debt package to back the buyout of Austrian biopharma products supplier Single Use Support, which had been marketed off EBITDA of around €30m. Partners Group has lined up a circa €65m debt package to support the buyout of German cloud-managed software provider glueckkanja.

For the full run down on all the in-market deals in our pipeline, go here or email subscriptions@9fin.com.