The broader European debt market shows strong signs of recovery in 2024.
The debt market in the Benelux will show a stable recovery in the second half of 2024, despite persistent geopolitical uncertainties and a wait-and-see attitude from investors.
According to DC Advisory's latest European Debt Market Monitor, there was a slight improvement in M&A activity in the Benelux region in Q2 2024. This is a step forward compared to previous quarters where volumes remained relatively flat. The positive trend is mainly due to stable market sentiment and slightly improved economic growth, despite the challenges faced by investors.
European debt market shows recovery
The broader European debt market is showing strong signs of recovery in 2024, particularly in the broadly syndicated loans (BSL) market. In the first half of 2024, the European BSL market reached 134.1 billion euros in activity, the busiest first half since 2021.
In the second quarter, the volume of these loans increased by as much as 46 percent to 79.6 billion euros, compared to 54.5 billion euros in Q1. This is a huge increase compared to Q2 2023, when the volume was only 18.8 billion euros.
The main driver behind this growth was the refinancing and renewal of loans, which amounted to 52.6 billion euros in Q2 2024, which represented an increase of 67 percent compared to Q1.
Companies took advantage of lower interest rates and high demand for loans through collateralized loan obligations (CLOs) to lower their financing costs. This resulted in a decline in margins by an average of 68.75 basis points in 2024.
Benelux remains stable, but recovery is expected in 2025
Although the broader European debt market is showing a strong recovery, the recovery in the Benelux region remains modest for now. According to Paul de Hek and Robert Ruiter, Co-CEOs of DC Advisory Netherlands, the market in the Benelux remains stable, with a slight increase in M&A activity.
However, they emphasize that significant improvement in the market will require a combination of positive economic growth and geopolitical stability. Geopolitical stability in particular would play a crucial role in freeing up 'dry powder' for investors.
A key point made by DC Advisory is that strategic buyers are taking advantage of other investor groups' reluctance to get in early in the process. Strategic buyers typically have longer timelines and can therefore provide greater certainty to sellers, which allows them to offer better prices through synergy benefits.
Forecasts for the second half of 2024
The outlook for the second half of 2024 remains cautiously optimistic, despite the traditional summer slowdown in July and August. The favorable conditions for loans, such as lower interest rates after a 25 basis point interest rate cut by the European Central Bank in June 2024, and the continued demand for loans from CLOs, keep the market buoyant. This helps reduce costs for borrowers and provides a competitive advantage for private credit markets.
However, geopolitical uncertainties remain an important factor. Election outcomes in the US, the rise of the AfD in Germany and uncertainty in France could play a role in future market developments. Although inflation in Europe rose slightly to 2.8 percent in July 2024, the overall economic environment remains supportive for debt markets, with further interest rate cuts expected once inflation is further under control.
Preview of M&A activity
Although there are signs of an increase in M&A activity, the size of these transactions remains lower than 2021 levels. Non-refinancing volumes increased to 17.1 billion euros in Q2 2024, an increase of 120 percent compared to Q1. Yet many investors continue to focus on value creation within their existing portfolios, rather than pursuing new deals.
DC Advisory predicts that the M&A market will recover in the medium term, but expects a full recovery will not occur until 2025 or later. However, optimism is cautious: more processes are expected to be initiated after summer 2024, with longer lead times to give both buyers and financiers the space to thoroughly conduct due diligence.
All in all, the debt market in the Benelux remains relatively stable, with limited but positive prospects for the near future. However, geopolitical developments and economic factors will determine further growth in the second half of 2024 and beyond.
Read also: The market for secondaries is growing
