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European mezzanine investment increases by 120 per cent in H2 2002

Mezzanine investment in Europe more than doubled in the second half of last year, compared with the first half, providing some proof of the market's relative buoyancy in the region.

As much as E2.2bn was invested in the second half of 2002. This represented an increase of 120 per cent on H1 2002, when E1bn was invested, according to the Mezzanine Management Monitor.

The climb was explained by increased activity from the larger European buy-out houses, said Mezzanine Management, as well as the perception that mezzanine investment represents an attractive alternative to the high yield bond market.

‘Despite the current tough economic environment, we believe that the mezzanine market will continue to grow in the long term as a flexible form of leveraged finance for deal sponsors and companies,' said Rory Brooks of Mezzanine Management.

Total mezzanine investment levels in 2002 remained below those of 2001, with E3.2bn invested compared to 2001's total of E4.2bn, reflecting the smaller size of transactions throughout the industry.

In terms of geographical breakdown, the UK market share of mezzanine investment fell to 35 per cent in 2002, compared to 52 per cent in 2001. Mezzanine investment in France, in contrast, more than doubled its share of the market from 15 per cent in 2001 to 36 per cent in 2002. This was partly because two of 2002's largest deals took place in France, the E1.6bn buy-out of Telediffusion de France and the E4.3bn buy-out of Legrand.

‘Many of the larger buy-outs in Europe are now being financed with significant mezzanine tranches,' said Brooks. ‘This reflects both the maturity of the mezzanine market and an increase in the availability of mezzanine for investment.'

Mezzanine investment has been attracting increasing attention within the private equity industry of late. More players are entering the market and some investors appear to be warming to the sector. UK-based Indigo, for example, closed its fourth mezzanine fund in January with E475m, comfortably ahead of its original target of E400m.

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