Skip to main content

M&A monitor

Signs of recovery in debt market emerge

After a record-breaking deal year for private equity in 2021, 2022 was rather different.



The impact of the war in Ukraine was felt in many countries as supplies of energy, food and other commodities became more precarious, leading to increased costs and rising inflation. The low interest rate environment that supported leveraged investments over recent years ceased with many central banks around the world ending quantitative easing and raising interest rates. Additionally, government debt levels remain elevated as a result of state support provided during the pandemic.

Against that background, debt and equity investors slowed down investments as they re-assessed valuations, projections and return expectations. In Europe, this led to reduced buy-out activity throughout most of 2022, both as a result of the gap in valuation between buy-side and sell-side and the reduced availability of debt in the syndicated loan and bond markets. Direct lenders were able to gain increased market share as equity investors looked for liquidity and opted for certainty on price and terms in an uncertain market.

Lack of liquidity and investor confidence has meant that processes to obtain committed debt financing in 2022 have taken longer than usual. Negotiation with a large number of direct lenders – and sometimes CLOs directly in parallel – has been required to ensure that financing commitments are obtained on common terms by the relevant bid deadline. Many direct lenders required frequent renewals of committee approvals, leaving equity investors uncertain as to the quantum and terms of debt for the proposed investment until signing, affecting equity investors’ ability at times to progress terms meaningfully on the acquisition side. As investor confidence improves, we expect timelines will return to normal and processes for syndicated debt and direct lending deals will be run in parallel, with fewer direct lenders needing to be approached.

Alternative capital providers on the rise

We expect private credit providers to continue to grow assets under management and to continue to provide an alternative source of credit for transactions in competition with the syndicated loan and bond markets.

Positive signs of initial recovery in the debt markets and increased new deal activity have appeared towards the end of 2022. As we move into 2023, investors are hopeful that a new normal will be found on debt pricing and valuations – which will be one of the key challenges for the new year – with increased deal activity expected as a result.