Deal flow at the Covid trough

The Covid downturn dipped mid-market private-debt activity without seizing it. Across Deloitte’s alternative-lender panel, completed deals in the year to autumn 2020 eased to 447 from 484 a year earlier, a single-digit fall, not a stop. And within that smaller book the buyout share rose to 67% and UK unitranche to 64%. Lenders did not withdraw capital; they concentrated it on quality. For a borrower with a clean story, the market stayed open.

This is the desk’s periodic stock-take, written at what looks like the low point of the year. It is not a forecast. It is a reading of where the market actually sits, drawn from the data the major houses have published and re-expressed in our own terms. The single best public gauge of mid-market direct-lending activity is Deloitte’s Alternative Lender Deal Tracker, a running survey of the leading European private-debt funds. Its two 2020 editions, taken together, tell a clear story: a real, selective slowdown, not a freeze.

How far did deal flow actually fall?

Less than the headlines of spring 2020 would have led anyone to fear. On a trailing-twelve-month basis the panel completed 447 deals in the year to autumn 2020, against 484 in the year to spring, a fall of under 8%. The pressure was concentrated in the first half of the year: half-year deal counts stepped down from the second half of 2019 into the first half of 2020, the window when the pandemic first hit dealmaking. The line below traces that descent into the trough.

Two things are worth reading in that chart. The first is that the decline is a slope, not a cliff: deals kept completing throughout, even in the worst quarter. The second is what it does not show: a wave of defaults or forced exits. Lenders that pulled back on new underwriting largely stayed constructive with the borrowers already on their books, extending covenant headroom and short amendments rather than calling facilities. The reduction was in new-deal appetite, and even that was partial.

Where did the capital that kept moving go?

Into quality, and the composition of the book shows it plainly. As total volume fell, the share of deals funding a buyout did not fall with it; it rose, from 64% in the spring edition to 67% by autumn. That is a composition effect worth understanding. In an uncertain market the marginal deals are the first to pause: the opportunistic refinancing, the event-driven raise. Sponsor-backed buyouts, underwritten and equity-supported, keep completing. The surviving book skews toward the credits lenders trust most.

The structure mix tells the same story from a different angle. Unitranche, the single blended senior facility from one lender in place of a syndicated senior-plus-mezzanine stack, took a larger share of UK deals at the trough, rising from 58% to 64%. When conditions tighten, borrowers and lenders both reach for the simpler, faster, single-counterparty package. Complexity is a luxury of calm markets; certainty of execution is what a 2020 process was buying.

What the trough meant for a £3–15m borrower

The practical reading is not the reassuring one that “the market was fine”. It plainly tightened. It is that the tightening was selective, and selectivity is something a borrower can act on. The deals that completed in 2020 were the ones where the lender could see the cash generation, the equity backing or the collateral clearly enough to move at speed. The deals that stalled were rarely bad businesses; they were businesses that could not yet tell that story cleanly under pressure.

None of which changes the desk’s standing advice, because the advice was never about the cycle. Run a competitive process across the whole field of lenders. In a selective market the dispersion between the keenest and the most cautious quote widens, and that is where the value sits. Prepare the credit story before you need it, so you can move at a lender’s speed rather than your own. And treat a downturn as a sorting mechanism, not a closed door: the capital is still there, and it is looking for exactly the borrower who shows up ready.