UK sponsor-backed financing activity experienced a modest slowdown in Q3 2024, as ongoing M&A sluggishness and seasonal dynamics impacted deal flow, according to the latest data from global investment bank, Houlihan Lokey.
With 47 transactions completed during the period, the report finds there was a 15% decrease in UK mid-cap deals compared to Q2 2024 (55 transactions). However, year-to-date activity remained stable, showing a modest 1% decrease compared to the same period in 2023.
The data also highlights the continued dominance of credit funds in the UK financing market, which now account for a commanding 72% of year-to-date transactions, compared to just 28% for banks. This marks a notable reversal from last year, when banks expanded their market share, completing 34% of deals in FY23 versus the 28% they hold this year. This shift reflects a resurgence in appetite from credit funds, which have regained confidence and a stronger foothold in the market following a challenging 2023.
New leveraged buyout (LBO) financings remained the key driver of UK deal activity, representing 39% of year-to-date transactions—a reflection of a slight rebound in M&A activity compared to last year. Add-on financings also represented a significant share, making up 37% of total deals, while refinancings comprised just 24% year-to-date. Improving debt market conditions are expected to support a rise in the share of refinancing activity in the coming quarters, as borrowers seek to capitalise on the increasing availability of capital.
Patrick Schoennagel, Managing Director in Houlihan Lokey’s Capital Markets Group and Head of Sponsor Finance, Europe, commented:
“Sentiment in the UK debt market remains positive heading into Q4, underpinned by strong liquidity and favourable financing conditions. Credit funds in particular, continue to demonstrate an appetite to finance growth, offering flexibility in pricing and leverage, while remaining selective — focusing on quality assets, attractive sectors, and strong credit fundamentals.
While the slower pace of M&A activity continues to temper overall deal volumes, the pipeline of new transactions heading into Q4 and 2025 is encouraging, suggesting that deal flow will pick up as improving market conditions support further activity.”
