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Welcome to Taking the Credit, 9fin’s weekly observations on the issues affecting the European private credit market. Find out more about what we do for private credit.

As quickly as it arrived, August is already coming to an end and — like it or not — it is time to consider what the end of the year will bring to the private credit market. A couple of months into H2, hopes are high for the eagerly expected return of a consistent M&A activity.

So far the deal flow has been slower than previous years but steady, as showed in 9fin’s European Private Credit Review H1 24. Now, it might be the summer vibes, but we sense some optimism around.

And maybe (I said maybe) optimists might be on the right track.

“Last year, everyone said M&A will come back in 2024, then 2024 came and it was, 'it will come back in Q2'. Then it was H2…,” a market source said. So, is now the time?

“August has been one of the busiest months this year, so that tells me that we might be heading for a busier H2,” another market source added.

In a recent 9Questions, Mike Carruthers, Blackstone's European head of private credit, agreed with the sentiment: “I feel more optimism around the M&A market improving. I think you have all the ingredients in place to have more M&A: cost of capital is coming down, spreads have tightened a bit, you're seeing the first interest rate cuts in Europe, and sponsors have held assets for a long time,”

Houlihan Lokey's latest MidCapMonitor also shows the start of a positive trend. Activity in the UK debt market increased in Q2 24, driven by a strengthening M&A market, the research pointed out.

With 55 UK mid-market debt transactions completed during the quarter — 77% done by credit funds — there was a 20% increase from Q1 24 (46 transactions) and a 2% increase year-over-year from 54 transactions in Q2 23. In H1 24, the total 101 deals were up 7% from H1 23 — indicating a very welcome pick-up in UK deal flow activity.

“Looking ahead to the second half of 2024, a robust M&A pipeline signals the potential for a continued resurgence in deal activity, a trend that will only be bolstered should the Bank of England cut interest rates again later this year,” said Patrick Schoennagel, managing director in Houlihan Lokey’s capital markets group and head of sponsor finance, Europe.

Fidelity's final goodbye to European direct lending

After a summer of volatility and uncertainty, August ends with some impressive U-turns.

Putting an end to their long-running feud, beloved UK band Oasis offered a pleasant surprise to music lovers worldwide this week as they announced their return and a 2025 world tour — a one-eighty in a very different direction to Fidelity, which is taking the final steps to fully part ways with European private credit.

… Let's hope they don't look back in anger.

The firm is now approaching potential buyers for its only two European private credit loans, following its decision to lay off around 30 people from its European private credit team this spring, 9fin reported this week.

Having struggled to get the fundraising off the ground since the launch of the strategy in October last year, the firm drastically changed plans in May, scrapping the entire strategy all together.

The fact that the news of Fidelity's private credit flop — shortly followed by Polen Capital's direct lending exit in June — came while funds like Ares, Arcmont, and Goldman Sachs were raising record-breaking funds, is a perfect display of the polarised state of the fundraising market.

There are no signs of a change H2, with the market expecting others to go down the same road as Fidelity.

“We are keeping an eye on a number of funds which seem to be struggling. Some of them are raising close to no money,” a market source told 9fin.

A few casualties are not stopping the market from launching new funds, however. Pemberton is raising its fourth strategic credit fund, targeting €3.75bn, Private Equity News reported this week.

Pemberton's Strategic Credit strategy focuses on financing opportunities with more complexity than plain vanilla direct lending, targeting mid-market companies with EBITDA between €15m and €100m, according to its website.

As market players are returning from the summer holidays, our European private credit pipeline is filling up.

Mobile game and app developer Voodoo is looking to refinance its existing €220m of syndicated debt with private credit funds, 9fin reported this week. The company’s current TLB is due to mature in October 2025, priced at Euribor+450bps in 2020.

At the time of the current financing, Voodoo was rated by Moody’s and Fitch at Ba3/BB, however since then, it has slid down to B3/B.

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