Market Insight: UK consumer sector refinancings

Vidur Sachdeva
01 June 2015

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Refinancing activity across Europe has increased dramatically in recent years, and it would seem the UK consumer sector has received the most attention. Vidur Sachdeva takes a closer look at the trend

According to unquote" data, 2014 witnessed more refinancing deals in Europe than ever before. Back in 2006, when investor sentiment was soaring, unquote" data had recorded the highest refinancing volume of any year on record – 32 in total, which was seven more than the previous peak of 25 deals recorded the year before. These 32 transactions marked the fifth consecutive rise in refinancing deal volume, a trend that began in 2002.

The financial crisis that followed brought with it a sudden and steep decline in refinancing activity in Europe. There was a 53% fall in refinancing deals in 2007, as only 15 such transactions were reported, while 2008 saw activity in this category dry up by a further 50% to just 10 deals.

As central banks across Europe grappled with the changing economic landscape and lowered interest rates to historic lows, refinancing dealflow began to recover. As compared to 2008 records, refinancings more than trebled to 33 deals in 2014, accounting for 81% of growth since the crash. Compared with 2013, last year witnessed a rise of 65% in refinancing deal volume, from 20 to 33 deals, exceeding the previous peak noted before the crisis in 2006.

A closer look reveals much of this resurgence can be traced to refinancing deals in the consumer sector and, to a lesser extent, the industrial sector. Of the 33 refinancing transactions completed in 2014, 16 (48%) took place in the consumer sector, while industrials accounted for a further eight deals (24%). In other words, the two sectors were home to almost three-quarters of refinancings in Europe during 2014.

In fact, refinancing deals in the consumer segment have registered a sharp increase since 2008. Dealflow in the sector increased four-fold from four deals in 2008 to an all-time high 16 in 2014.

Drilling down by region, the UK and Ireland reached new highs last year. The region was home to 19 refinancings of private equity-back buyouts, or 58% of all such refinancing deals in Europe in 2014. France finished a distant second with five deals, while the Benelux, DACH and Nordic regions tied for third place, each recording three transactions.

The 19 transactions in the UK and Ireland represent an increase of 137% from 2013 records, when eight such deals were reported. The rise is more impressive when compared to the number of refinancing deals in the UK and Ireland in 2008 – only two transactions were recorded by unquote" at the time.

Almost 60% of refinancings in the UK and Ireland last year took place in the consumer segment. Considering the reluctance of banks to lend to the UK consumer space during the difficult downturn years, it is intriguing to see how quickly this situation has changed.