Record year for mezzanine investment

The 2001 data highlights a ten per cent increase in mezzanine financing although figures for Q1 2002 reveal a sharp downturn.

Mezzanine financing reached record levels in Europe in 2001, rising by more than ten per cent against 2000. Research published by PRICOA Capital and Initiative Europe shows that mezzanine financing reached E4.2bn last year despite the overall slowdown in European buyouts.

However, the level of mezzanine investment activity in the first quarter of 2002 fell significantly, with only E359m invested compared to E977m for the same period in 2001 and E968m for the final quarter of 2001. The largest European buyout in the first quarter using mezzanine was the E418m LBO of Azimut by Apax Partners, which comprised a E57m tranche of mezzanine finance.

112 mezzanine transactions were completed in 2001, slightly up on the 106 completed in 2000.  The first quarter of 2002 has seen a major fall in mezzanine deals, with activity reduced to eleven completed deals, compared to 26 in the same period in 2001. Last year’s largest mezzanine transaction was the E600m backing of the E6.4bn Meridien Hotels acquisition by Nomura. Merrill Lynch, CIBC World Markets and AIB provided mezzanine financing for this deal.

The UK remains the most significant mezzanine market although in the first quarter of 2002, France had the highest level of investment with E105.7m, followed by the UK with E91.52m and Germany with E88m. The average tranche size of mezzanine debt in private equity transactions has continued to increase, reaching a new record high of E37.5m in 2001 against E35.8m in 2000.

Despite the Q1 downturn, Terence Wong, executive director at PRICOA Capital, believes that mezzanine financing will play an increasingly important role in European transactions: 'One of the most notable trends is that mezzanine is becoming an integral component in the larger European buyouts market. It is in the deals over E250m where the use of mezzanine has considerably increased. We also believe non-buyout mezzanine may see growth this year as some corporates turn to new sources of funding.'