European leveraged loan issuance reached €22.7bn in Q1 2026, the weakest first quarter since 2023, and direct lending volume fell 33% year on year. The headline data describes a slowing market. The conversations we have had this month with advisers and lenders describe a different one.

We spoke to a number of independent counterparties in the past few weeks including debt specialists financing UK mid-market roll-ups and other corporate finance firms and capital markets law firms we work with in Europe and the US. All said the same thing, separately. Activity has started to shift since February 2026. In the past three months, debt for bolt-on acquisitions has been the dominant source of mid-market financing demand, with PE firms holding portfolio companies longer than planned and using acquisitions to drive growth ahead of exit. M&A has picked up in the same window after a quiet H2 2025. Banks are actively lending.

The disconnect between the Q1 data and our May conversations is not a contradiction. It reflects the lag between when deals are originated and when they close. The deals that will close in Q3 and Q4 2026 were originated in February, March and April. They have not yet appeared in the published deal data, but they will. From the adviser and lender conversations we have had, EMEA M&A activity is expected to rise in 2026 overall, with the mid-market segment leading the recovery. Over $2.2 trillion of global PE dry powder continues to pressure allocation from 2020 and 2021 vintage funds.

The market is gaining traction, but activity is uneven across categories. The valuation gap that defined H2 2025 is closing on cash generative assets and widening on businesses exposed to cyclical or seasonal environments. Buyers are returning to assets they understand and passing on the ones they do not. For owners and PE firms weighing whether to enter a process in H2 2026, the conditions are currently favourable. What matters is whether the business is in the right industry for today's buyers.

#CorporateFinance

#PrivateEquity

#MidMarket