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