Market activity levels for both M&A and financing in the lower-mid/SME market were surprisingly buoyant in the opening quarter of 2021, with this hopefully being an early sign of post Covid-19 economic recovery. So, what does this rise in activity tell us about how lenders are currently viewing the SME market? Can SMEs now hope that normal, ‘business as usual’ lending will become easier to obtain as the economy begins to open up through 2021 and beyond?

Our latest analysis of 86 publicly disclosed transactions in the lower-mid/SME market shows that deal activity has been relatively strong in a wide range of sectors in the first quarter of 2021. Business Services and Industrial & Manufacturing are among the sectors with the highest levels of deal activity.

Sectors that are believed to hold strong potential for the future, such as Technology and tech-enabled Business Services, also attracted high levels of interest from both investors and lenders during Q1.

Unsurprisingly, activity in industries that have more questionable immediate outlooks due to the pandemic, such as Retail, Leisure and Commercial Real Estate, has been markedly quieter. Whilst our analysis shows that activity in the Healthcare and Pharmaceuticals sectors was, maybe, lower than expected, we expect that when the economy returns to some degree of normality, deal activity should rise in these sectors.

So how are these transactions being financed?

Whilst funding from alternative lenders is firmly established for larger transactions, our analysis shows that, at the moment, adoption of alternative lender financing has been slower for smaller deals. 53% of deals in our snapshot were still funded through traditional players (banks and ABL). However, this is skewed towards the non-private equity community with a majority (59%) of smaller PE transactions in this space now being funded by alternative lenders.

Given the current constraints within the mainstream banks, we expect the trend towards alternative lender financing to accelerate in the lower-mid/SME market. Anecdotally, nearly every client conversation we are currently having involves consideration of non-bank lenders.

With a greater variety of funding options and sources available now than at any time previously, having expert advice can be crucial to ensuring you get the right financing to suit your business’ priorities and needs. Advice from a debt advisor can be vital in helping you explore all potential funding options, alongside providing you with support all the way through the process.

ACP Altenburg Advisory is part of ACP, a leading independent debt advisory association for SME and mid-market companies, advising clients on the options available to them and providing hands on support from day one all the way through to drawdown.

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