Direct lending has consolidated its position as the main source of funding for leveraged mergers and acquisitions in Europe, Debtwire data shows. Since early 2025, private lending has exceeded leveraged loans in funding provided for strategic acquisitions, excluding leveraged buyouts, for six consecutive quarters. The trend highlights the growing role of private credit in acquisition financing across Europe.

Average quarterly volume in the direct lending market jumped from EUR 3.5bn in the five quarters between 1Q24 and 1Q25 to EUR 5.8bn in the five quarters that followed. Since early 2024, direct lending has provided EUR 46.7bn for M&A, 36.7% more than the EUR 34.17bn provided by the leveraged loan market. The gap is even more notable given the significantly larger size of the syndicated market.

This growth has occurred alongside an increase in mergers and acquisitions across Europe, a trend the syndicated market has not fully captured.

Acquisition funding is gaining ground as a share of direct lending new-money issuance and moving closer to LBO volumes. These two categories, alongside general corporate purposes, form the core of European private credit new-money issuance. Together, they account for the majority of capital deployed in the market.

Direct lending has sustained new-money issuance through periods of volatility and has often benefited from market disruptions, emerging as a reliable source of new-money financing through successive episodes of geopolitical instability in recent years. The market’s ability to keep providing funding during periods of uncertainty has reinforced its importance for corporate borrowers.

When the so-called Liberation Day disrupted markets in early April 2025, Debtwire showed how private markets had been positioned to step up and provide options when syndicated lending could not. Given that geopolitical tensions have not disappeared since then, direct lending’s strong new-money issuance suggests this may be happening again. Every quarter since 2Q25, new-money issuance has remained above EUR 15bn. The consistency of these volumes points to private credit’s ability to finance the existing demand despite recurring market disruptions.

The acquisition funding by direct lenders has not only grown and remained stable, but it has also become more diversified by sector. Not even the sell-off in software paper in early 2026, historically direct lending’s most active sector, was enough to suppress acquisition activity, which quickly rebounded in 2Q26.

Less technology, no problem. Over the past four quarters, technology’s share of acquisition funding fell from 40% to under 30%, while the share of sectors outside the top three ones increased from around 20% to 40%. The shift suggests that activity is becoming more evenly distributed across sectors.

Despite lingering AI-related concerns following the earlier sell-off, it is important to highlight that direct lending acquisition activity appears less dependent on a few sectors than it once was. A broader sector mix may help support activity levels if volatility returns to industries that have traditionally accounted for a large share of deal flow.