Carveouts continue
As mentioned in our last report, carveouts are a growing driver of M&A as technology firms seek to dispose of non-core assets.
There were four carveout deals in Q3 2024. Notably, Capita disposed of Capita One, its standalone software business, to MRI Software in a £200 million deal as part of a strategic review to focus on core activities and strengthen its financial position. On the Media side, Wilmington plc also sold its UK healthcare business to Inspirit Capital, following the sale of its French healthcare unit earlier in the year, to double down on a pure play focus on GRC in regulated markets.
Debt gets competitive
TMT remains one of the most active sectors for lenders attracted by a combination of high growth, strong cash generation, and significant levels of recurring revenue.
Despite this, new issue lending levels are inextricably tied to M&A volumes. As TMT M&A activity has been flat over the last year, most debt has been deployed for refinancing or extension of existing facilities.
However, we’re seeing competition among lenders to finance new TMT deals, which has led to increased funding options, a reduction in interest rates and greater flexibility in terms. Debt funds have been particularly active as they vie to deploy capital.
Ability to service debt remains a primary limiting factor on leverage over the past two years. We expect to see this slowly lift as central bank base rates and SONIA come down, but we have also seen lenders increasingly open to non-cash pay (or PIK) interest as an element of the interest rate, together with the benefit of the reduction in margins seen in 2024.
