The outlook for mergers and acquisitions activity in 2025 remains subdued though dealmaking may rebound if economic conditions improve. Companies are eager to invest despite the broader uncertain macroeconomic backdrop. If market conditions become more supportive, then sponsors will start recycling assets and that will kickstart a virtuous cycle of increased funding and lending activity.

The private lending market is relatively more stable. At a broad level, corporate balance sheets in the investment grade space are resilient. Moreover, borrowers continue to expect that interest rates are headed lower that could be act as a tailwind for lending activity. Another advantage of a slightly subdued outlook is companies who might have been planning to execute a large transaction via a syndicated deal or visiting the public market, might end up with a smaller issuance tranche via the private lending space.

Geographically speaking, investor sentiment towards Europe is relatively more positive compared to the UK, mainly due to the political changes and subsequent fiscal policy. European lenders are aggressive in the private credit lending space with Italian and Spanish banks providing stiff competition. Infrastructure related funding remains a key focus for policymakers, driven by government spending plans.

A big theme playing out in private credit in Europe is the progressive shift from a bank funding to a non-bank funding model. In Europe, we are starting to see the trend of companies wanting access to more longer term capital. The structural growth driver for that trend remains intact in Europe and this shift is likely to accelerate thanks to regulatory changes. The other big driver encouraging the shift towards private lending is the lacklustre performance of the public bond and equity markets. For example, the IPO market in the UK has been outpaced by its global counterparts in recent years. In comparison, the illiquidity premium harvested by investors relative to public assets remains reasonable fuelling that shift. The overall activity for 2024 was robust with a tilt towards higher yields and riskier credit quality transactions.