More than 30 percent of M&A professionals see financing as 'challenging' in 2024.
• 38 percent of M&A professionals see financing as 'challenging' in 2024.
• Agreeing on price/valuation is the biggest challenge, experience dealmakers.
• The causes of financing challenges are the invasion of Ukraine by Russia, closure of the capital markets and uncertainty about interest rate developments.
• Direct lenders are taking on a larger role in the deal market with higher leverage and more flexibility than traditional banks.
The recent Dutch M&A Trend Survey 2023 by M&A and Ansarada shows that more than a third of M&A professionals consider financing to be the most challenging aspect of the deal process in the Benelux the coming twelve months.
With 38 percent this is the second biggest challenge for the coming deal year. Only 'agreeing on price/valuation' scores higher with 43 percent.
Part of the reason for these challenges lies in the fallout from the 2022 invasion of Ukraine and the subsequent closure of capital markets, coupled with long-term uncertainty about rising interest rates.
Financing landscape relaxes, but challenges remain
Although the capital market appears to have relaxed somewhat since the summer, with interest rate increases stabilizing and inflation at lower levels, financing for mega-deals remains a challenging task. According to Diederik Kolfschoten, Partner Debt & Capital Advisory at PwC Netherlands, sentiment is recovering, but we have not yet returned to historical financing levels.
Banks keep doors open for midcap deals
Nevertheless, experts, including Aron de Jong and Joost Reefhuis of Mazars, see that banks are still willing to finance midcap deals. Capital is available, albeit at a higher cost. Banks have become more cautious, but remain open to financing companies with an enterprise value between ten and fifty million euros.
Direct lenders are taking the lead
Geopolitical tensions and stricter regulations have led to changes in the financing landscape. Banks have become more cautious, especially when providing leverage. Direct lenders fill this gap and provide higher leverage (4.5 to 5.5 times) with more flexibility than traditional banks. Diederik Kolfschoten predicts an increasing dominance of direct lenders in acquisition financing and other segments, further marginalizing the role of banks.
While the financing landscape faces challenges, direct lenders offer new opportunities for financing with higher leverage and flexibility, which especially offers opportunities for the financing of large deals by private equity firms. Strategic buyers often finance a larger part of the acquisition themselves.
Read more about acquisition financing in current times here (article in Dutch).
