Debt markets globally are opening up, particularly in North America where debt multiples are returning to pre-crisis levels, according to a study by research firm Grant Thornton surveying 156 private equity senior executives worldwide.
Of the respondents globally, 56 percent said getting debt funding for deals is “very easy” or “easy”, up from just 44 percent last year. For North American GPs, 66 percent said debt funding is “very easy” to come by, with 31 percent saying it is “easy”, the report showed.
In contrast, 75 percent of respondents said that debt funding in India is “very difficult”, with the remaining 25 percent saying it is “difficult” to come by.
In Asia Pacific as a whole, 55 percent of respondents said debt was “easy” or “very easy”.
Moreover, Asia has attracted fewer alternative sources of debt funding for deals, compared to the rest of the world.
For example, in Europe and the MENA region, 42 and 40 percent of the respondents respectively said that their sources of debt are changing.
[Sourcing debt] has improved on two fronts: one is the high-yield market. There has been a bubble on the high-yield market; that’s correcting now and it is still a very liquid market. Then there is the emergence of the private debt market and over time this will become more of a feature.
France-based GP cited in the Grant Thornton report
“It’s improved on two fronts: one is the high-yield market. There has been a bubble on the high-yield market; that’s correcting now and it is still a very liquid market. Then there is the emergence of the private debt market and over time this will become more of a feature. This is a new feature and is sometimes a good alternative to traditional lenders,” one France-based respondent said.
In contrast, 86 percent of Asia-based respondents said that their sources of debt remain the same, with 100 percent saying this of India.
However, entry multiples in India are expected to stay the same or decrease, with zero respondents believing they will go up, the report said. This compares to 24 percent of those asked in Asia Pacific as a whole who believe valuations are on the rise.
“Multiples are slightly lower than they have been in the last 12 months, but there is still a big gap between what vendors expect and what the current conditions sensibly allow. Entrepreneurs have always looked to PE as a provider of high valuations,” one India-based respondent said.
Globally, 15 percent of respondents expect valuations to shrink, with 25 percent saying they are likely to increase – this is in slight contrast to 12 months ago when there was a slight bias towards an expected decline in pricing levels, according to the report.