Europe Loan Bankers Look to M&A Revival to Boost Volumes
Refinancings have been helping to boost European loan volumes in 2024, but it looks like mergers and acquisitions are starting to pick up steam. Lower European interest rates, tight bond spreads, increased agreement on valuations between sellers and buyers, and a US president friendly to Wall Street are all contributing to the uptick in deals expected for next year.
Nicolas Rabier, co-head of IG finance and loan capital markets EMEA at BNP Paribas, shared that they are gearing up for a busier year of M&A in 2025, especially after a slow 2023. With ongoing discussions and large borrowers ready for acquisitions, the outlook is positive.
Global M&A transactions worth about US$40 billion were reported on Monday (Dec 8), with Mondelez International looking into acquiring Hershey. Meanwhile, bankers are in the process of raising around 9 billion euros for Unilever’s ice cream business, and Vivendi has received approval to spinoff three multi-billion euro units.
While EMEA investment-grade loans seem to be on the rise at 340 billion euros, marking an 8% increase from last year, the number of deals has decreased by nearly 13%. Although volumes are still below 2022 levels, the scale of M&A deals is encouraging for banks. For example, the largest loan deal this year was around 14 billion euros to finance DSV A/S’s buyout of DB Schenker, showing that new lending for substantial acquisitions is on the rise.
As banks wait for more significant M&A deals to contribute to their volumes, they are relying on solid relationships and refinancing to support their lending activities. Notably, refinancing of facilities that corporates took out during or after the pandemic has been a prevalent trend in tapping into an attractive market.
However, lenders are facing tough competition from a thriving bond market, with tight spreads that haven’t been seen since early 2022. More stringent regulations could potentially make it harder for banks to extend their balance sheets, pushing some corporates towards the bond market instead of loans. As the market dynamics evolve, it will be interesting to see how firms choose between bond financing and loan financing in the coming year.
