Investors and borrowers alike are bullish about how hot the European financing markets have been this year, noting the proliferation of deal opportunities and advantageous terms. After an election year in the United States that saw a cautious return of activity following a slowdown in 2022 and 2023, limited partners were hungry for returns in 2025 and put pressure on sponsors to execute refinancings and dividend recapitalisations.

Private credit funds have enjoyed strong fundraising appetite in the higher interest rate environment of recent years and now are experiencing pressure to deploy capital and fierce competition for a small number of quality assets. The uncertainty created by the new US administration dashed expectations of a healthcare M&A surge coming into Q1 2025, but clarity emerged through the course of the year, and industry leaders expect more sellers to soon start bringing assets to market.

Ongoing disparities in pricing expectations between buyers and sellers have led to slower deal processes, but stakeholders anticipate that bid-ask spread will narrow going into 2026. Some private equity funds have held assets longer than anticipated and now are eager to transact.

“For lenders, it’s been a year defined by compression – tighter spreads, looser docs, and a more competitive deployment environment. The challenge now is to balance discipline without passivity. That tension has really defined 2025 so far.” – Aymen Mahmoud, European head of finance and co-head of the London Transactions Group and the London Finance, Restructuring, and Special Situations Group, McDermott Will & Schulte.

Creativity, certainty, and portability are front of mind

Amid pressure to deploy, credit quality will be more important than ever in 2026. Relationships with sponsors remain a priority, as do documentation, structuring, amortisation, and the ability to secure a seat at the table early in the event that the asset experiences difficulties.

A growing number of credit funds are building sector-focused teams with deep expertise in the healthcare and life sciences space, the better to evaluate assets’ creditworthiness. Developing specialist knowledge can equip lenders to handle more complex situations and be paid additional yield for doing the work that other lenders may be less willing to embrace.

A tough dealmaking environment and an uncertain macroeconomic and geopolitical backdrop have prompted borrowers to seek out lending partners that can deliver reliability and creative financing solutions. Portability features have played a significant role in leveraged finance negotiations. These features allow a debt facility to roll over even if the company is sold, without triggering a mandatory repayment.

In today’s market, certainty also is increasingly a key differentiator. In order to sign up to a deal first, some lenders are committing to transactions without doing a great deal of work, relying on sector knowledge to gain an advantage over competitors.

“Private credit is no longer defined by what banks don’t do. It’s evolving into a multi-product platform capable of addressing everything from securitisation to equipment and royalty financing. The direction of travel is sophistication, not substitution.” – Aymen Mahmoud, European head of finance and co-head of the London Transactions Group and the London Finance, Restructuring, and Special Situations Group, McDermott Will & Schulte.

Looking ahead to 2026

Investors and industry leaders are cautiously optimistic about the outlook for the next 12 months. They anticipate that artificial intelligence and other emerging technologies will create more healthcare investment opportunities and drive activity. Other mega trends such as nearshoring of manufacturing and demographic change will also play into investment theses.

Sponsors still face uncertainty over government spending, trade tariffs, and healthcare policy and regulation. A meaningful decline in interest rates is not expected imminently, so it may take time for M&A dealflow to fully unlock. However, recent years have highlighted the resilience of mature economies and the enduring attractiveness of the healthcare and life sciences sector for both sponsors and their lenders. If economic conditions downgrade, the financing markets could tighten, but with record dry powder in the system and signs of dealflow picking up, the hope is that 2026 will see the return of M&A. That robust outlook will likely continue.

“The dislocation of 2023 was an inflection point. With syndicated markets effectively shut, private credit demonstrated its ability to step into core territory and execute at scale. That credibility has endured as macro events drove turbulence. 2024 brought the banks back into the mix, but the market reset has left a more stable equilibrium. The interplay between private and public capital is healthier and far less binary than before as part of private credit’s evolution.” – Aymen Mahmoud, European head of finance and co-head of the London Transactions Group and the London Finance, Restructuring, and Special Situations Group, McDermott Will & Schulte.