Mid-market lending has navigated a complex environment this year, shaped by global trade policy shifts, geopolitical tensions, and evolving regulatory frameworks. Deal volumes declined as M&A activity softened, prompting a shift toward refinancing and dividend recap transactions.
Both banks and private credit funds responded with tighter pricing, while sector diversification accelerated. The Financial Services and Consumer sectors saw notable growth, and the U.K. remained the activity hotspot.
Despite these challenges, the market has demonstrated resilience. Direct lending proved robust, and innovation in credit structures continues to reshape the landscape. Lender consolidation and evolving sponsor strategies are also influencing deal flow and competition.
We anticipate that refinancing momentum will persist in H2 2025 and expect a gradual recovery in M&A activity, supported by potential rate cuts and improving borrower sentiment.
AT A GLANCE:
- H1 2025 saw an 8% decline in the total number of deals as a soft M&A market reduced the supply of LBOs, driving a continued shift towards refinancing activity and dividend recaps
- U.S. tariff announcements contributed to the market slowdown, with geopolitical events fuelling inflationary pressures, though the market anticipates fewer interest rate cuts than at the start of the year
- Brief closure of syndicated markets in the aftermath heightened competition with direct lending markets, both of which saw margin compression
- Despite market sentiment facing headwinds from the November 2024 U.K. budget, market sentiment for H2 is upbeat, with refinancings driving momentum and a genuine M&A rebound expected
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