European mezz investment tops €4 bn in 2003

Subordinated debt grew as a proportion of both buyout and non-buyout funding in 2003, the second strongest year on record, as mezzanine investment in Europe increased by 16%, despite a dip in UK activity.

Mezzanine investment in Europe increased to €4.03 billion ($5.28 billion) in 2003, up from €3.5 billion in the previous year, according to data commissioned by Mezzanine Management and compiled by Initiative Europe. This 16 percent increase on the previous year ensured that 2003 was the second strongest year on record for European mezzanine investment, just behind the €4.2 billion invested in 2001.

Buoyed by a stronger buyout market in most European countries in 2003 and an increased investor appetite for all forms of debt in buyouts including mezzanine, the total number of buyout transactions using mezzanine funding in Europe rose from 94 in 2002 to 106 in 2003.

Increased use of mezzanine as development capital was reflected in the significant rise of the number of non-buyout transactions from 22 to 36 in 2003.

Although down slightly on last year’s volume, the UK maintained the highest overall level of mezzanine funding in Europe with €1.09 billion invested in 2003, principally due to the €345 million mezzanine tranche included in the €1.5 billion secondary buyout of DIY retailer, Focus Wickes. Germany made the strongest gain by investment value, with €1 billion of mezzanine funding, while Southern Europe, Benelux and Nordic markets also posted rises.

Commenting on the latest figures, Rory Brooks, founder director of Mezzanine Management, welcomed the rising position of mezzanine in both buyout transactions and the development capital market. In a statement, he anticipated intensified buyout activity in 2004 and said he was encouraged by the attitude of equity sponsors taking on larger amounts of debt risk, and consequently mezzanine, in deals.