Today The Institute for Turnaround (The IFT) and Macfarlanes published a report outlining recent trends in the business funding landscape in the UK and looking forward to what we might expect to see as we move through the remainder of 2024.

The report includes a discussion of the outlook for private equity sponsors and corporate borrowers, private credit funds, real estate debt and how private credit fund lenders are dealing with corporate borrowers in financial distress.  It highlights the improving outlook in 2024 compared to 2023, with the beginnings of a resettling of inflation and the expectation of interest rate cuts, expected to lead to an increase in UK M&A activity.

For private equity sponsors and corporate borrowers, there is very significant liquidity waiting to be deployed, a growing number of companies waiting to be exited as part of the typical investment cycle, and cheaper debt as well as demand from investors to see returns on capital.

Moving through 2024, private credit funds will also be looking to provide buy-out financing and satisfy a strong appetite for deployment, as well as exploring new strategies such as net asset value (NAV) basis lending and specific asset class strategies. The increased presence of private credit funds in the real estate debt space is likely to be bolstered by the recent growth of operational real estate.

Nevertheless, across the various types of funding, caution and discernment in relation to deals and sales processes is likely as funders take a prudent approach in light of the macroeconomic pressures of recent years, as well as continued geopolitical instability and scrutiny of funds. For businesses experiencing financial distress private credit funds may increasingly look for the provision of additional equity or where this is not forthcoming, may begin to ramp up the pressure, either for a business to seek more external capital or make a sale.

Over 2024-25 we will see a significant number of financing deals coming to maturity, in particular as a result of sale processes as well as increased M&A volumes. Funders will be looking for overdue returns, whilst remaining conscious of the importance of good relationships and flexible approaches, especially for businesses seeing difficulties and in an increasingly competitive market.

This report forms part of a programme of work that The IFT is carrying out on the funding environment, including our Funding Conference held earlier this year in association with Macfarlanes. Later in the year we will expand on the themes covered in the report with an overview analysis of the business funding landscape based on interviews with various lenders and funds, covering how approaches and considerations can differ across funding types.

We’d like to thank Macfarlanes for working with us on this report and providing their expert insight in this area.

You can read the report here.