Trend Report: Debtwire Par and Mergermarket Overview of US Buyout and Financing Trends 1H20
24 July 2020
Debtwire Par has partnered with its sister product Mergermarket to produce a comprehensive overview of US Buyout and LBO financing trends, including extensive advisory league tables.
Key Trends in 1H20:
- US buyout investments recorded 194 deals worth USD 15.1bn in Q2, down 46.8% by deal count compared to Q1 this year (365 deals, USD 49.9bn), and the lowest Q2 deal count since 2014. In the first half of the year, 559 buyout deals were announced worth USD 64.9bn, down 27.4% compared with 1H19 by deal count (770 deals, USD 137.1bn).
- During the COVID-19 pandemic peak, US buyout investments hit the highest quarterly relative market share since 2001, accounting for 26.1% of the total US M&A investments in 2Q20, from 24.5% in 1Q20.
- Primary debt markets were largely shut down in March due to the spread of the coronavirus (COVID-19) pandemic, which kept issuance muted in much of the second quarter. At roughly USD 14.1bn, institutional loans backing LBOs decreased by 68% in the second quarter, but on a positive note did see over USD 11bn in deal flow recorded in June alone.
- Of the USD 6.7bn high yield bonds issued for buyout activity in the second quarter, USD 5.3bn was issued in June, with the bond package issued by Thyssenkrupp Elevator driving monthly volume.
- The US South attracted most private equity investments by deal count in H1 with 180 deals worth USD 16bn, down 18.9% compared to 1H19 by deal count (222 deals, USD 50bn). The West dropped to second place with 169 deals worth USD 22.8bn. The Midwest buyout activity was hit most in 1H20. Total buyout deal count halved its size compared to last year, in total recording 72 deals worth USD 5.4bn vs 147 deals worth USD 32bn in 1H19.
- Weighted average margins on first lien institutional loans increased to 423bps in the second quarter from 415bps in 1Q20, however more materially original issue discounts (OIDs) widened sharply in 2Q20, pushing yields higher. Average yields in the high yield bond primary market increased to 6.5% in 2Q20 from 5.8% in the first quarter, with pricing in June tightening to 6.07%.
- Pharma, Medical & Biotech doubled its deal value in the first half, despite seeing two deals (82 deals worth USD 9.2bn) less than the same period last year (84 deals worth 4.6bn). The sector also witnessed an increase by relative market share by deal count from 10.9% in 1H19 to 14.7% in 1H20. Technology ranked first by both buyout deal count and deal value in 1H20 among all sectors, totaling 149 deals worth USD 25.8bn.
- The business services industry was the most active in the first half of 2020, accounting for USD 18.5bn of LBO-related issuance across 27 leveraged loan and high yield bond deals, followed by the industrials & chemicals sector (USD 17.8bn across 27 deals) and the technology industry (USD 11bn across 21 deals).
- Since the market hit its bottom on 23 March, secondary loan prices on sponsored deals have rebounded by 14 points overall but, with a weighted average bid of roughly 89.9 (% of par), remain nearly seven points below their pre-COVID high’s.