Financing Acquisitions in the Current Times: Banks Lose Market Share

Recent uncertainties have made banks more cautious in their approach to financing. Despite the availability of half-financing from banks, they have become more cautious due to rising interest rates, which increases funding costs and affects company valuations. In addition, direct lenders are playing a bigger role in the acquisition finance market.

M&A and Ansarada's 2023 Trend Survey indicates that 38% of M&A professionals see financing as a challenging aspect of deals for the year ahead, in addition to agreeing on price/valuation (43%).

Capital markets are closed following events such as the invasion of Ukraine and prolonged uncertainty about interest rate hikes, which has reduced the number of large deals. Banks have become more cautious in providing financing, especially jointly with other banks.

Although the capital market has relaxed somewhat since the summer, funding costs remain higher and companies are struggling to do mega-deals. However, mid-cap deals still find financing, albeit at higher costs.


Banks' attitude towards financing applications has not changed substantially, but uncertainty in various aspects makes financing more complicated. It is crucial that companies build in margins for these uncertainties and have realistic funding levels to remain fundable.

Rising interest rates have had a significant impact on financing costs, forcing down the purchase price of companies. Private equity firms that often use high leverage in deals feel this reluctance from banks the most.

Increased interest costs are causing company valuations to be reconsidered, but many sellers have yet to fully accept this change, delaying transactions.


Banks are becoming more cautious due to stricter regulations and have become more conservative in funding levels, leading to the rise of direct lenders in the funding market. This shift has seen direct lenders significantly increase their market share at the expense of banks.

Direct lenders offer higher leverage and more flexibility, but typically charge a higher interest margin. They are able to finance larger amounts, making them an attractive source of funding for private equity parties.

The role of banks will change structurally, with direct lenders becoming more dominant in financing. Especially for companies with a turnover of five to €10 mio, this shift will be noticeable.

In this changing financing environment, companies and investors will have to adapt to higher financing costs and the growing role of direct lenders to obtain successful acquisition financing.