Europe's direct lending mix turns to services as the market shrinks

The least durable number in PitchBook LCD's latest European private credit monitor is the one in the headline. Professional and business services has taken over as Europe's busiest direct lending sector this year, at 26 per cent of deal share against technology's 20 per cent, according to the monitor as reported by Alternative Credit Investor. The order was reversed in 2025, when technology led European direct lending, and the geography flipped with it: the UK now holds the highest deal share with France behind, after France led and the UK followed last year.

That sector swap is happening in a market that is shrinking. Taron Wade, PitchBook LCD's head of EMEA credit research, puts European direct lending volume at an estimated €7.4bn across 31 transactions, a reading shaped by the late-summer slowdown, while private credit overall sits 30 per cent behind last year's volume and 20 per cent behind its deal count year to date.

The pricing lines carry more information than the sector ranking. Average direct lending spreads are up slightly this year even as median spreads have fallen, and an average climbing over a falling median points to a tail: a handful of negotiated credits have repriced wider while the bulk of the book still clears, so the widening sits in a limited set of credits.

Ticket size tells a similar story: syndicated lenders financed €4bn of buyouts across three deals while direct lenders wrote €4.3bn across 18, which works out to roughly €1.3bn per syndicated deal against €240m in the direct column. That suggests the European direct lending franchise has settled at the mid-market end of the buyout market, with the largest deals still routed to broadly syndicated banks.

Refinancings are the hole underneath, estimated down by almost half from the same point last year and falling faster than acquisitions, which suggests the repricing trade that kept European books busy has largely been spent. What is left is the paper that could not find a better price earlier in the cycle.

Capital keeps arriving into that thinner market: Sixth Street reached a €3.75bn hard cap on its European lending fund and Jefferies has built $4bn of European lending capacity, per the same outlet's reporting. Fundraising against a pipeline that is deploying a third less than it did a year ago is the tension in the monitor, and as this publication has argued, the funding valve has moved to CLO resets while corporate direct lending volume sags.

Services leads because that is where the exits are: with refinancings halved and overall volume down 30 per cent, the deals that close appear to be the ones sponsors most want to sell, and fee-based cash flows are what they have been able to bring. If technology retakes the top spot, the reason will be the sponsor pipeline rather than lender sentiment. The line to watch is the median spread; if it turns up to meet the average, the widening has left the tail.