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A blooming industry

When it comes to private equity, the Benelux countries of Belgium, the Netherlands and Luxembourg are dominated by the Dutch. Although the Netherlands’ population of 16m is not that much bigger than Belgium’s 10m, there is a big difference in buyout activity, while the tiny size of Luxembourg means activity in that country is very small.

Despite the much bigger size of the Dutch buyout market, Belgium is continuing to mature as a private equity environment but has been held back by the lack of large, international corporates. There are significant differences between the two markets.

“The Netherlands and the Dutch-speaking part of Belgium have always been more open to private equity and they are more comfortable with buying and selling companies, restructuring and risk-taking,” says one private equity executive. The French-speaking part of Belgium, on the other hand, has more of a civil service mentality, he adds.

Andre Jaeggi, managing director at Swiss-based investor Adveq, says that while the Netherlands is not as developed a market as the UK or the Nordic region, it is not far off

“There has been a lot of restructuring at big companies and that will continue, which will mean further spin-offs,” Jaeggi says, adding that the Netherlands is a country where companies can be restructured and different layers of debt added without too much difficulty.

For the Netherlands, 2006 was an impressive year, in which transaction volumes were comparable with those of much larger economies, such as the UK, France and Germany.

Much of the reason for the buoyancy of Dutch transaction volumes was the number of large deals in 2006. These included the €7.5bn acquisition of market research and publishing company VNU, the €8bn deal for Philips Semiconductors and the €1.5bn purchase of TNT’s logistics unit. In the cable sector, Cinven and Warburg Pincus were very active, acquiring Casema and then Essent Kabelcom.

Media has traditionally been a strong sector for private equity investment in the Netherlands and last year was no exception with the VNU transaction. A consortium including KKR, Carlyle and Blackstone acquired the publishing and market research company, which employs 38,000 worldwide, for about €7.5bn in a take-private.

In December, 3i announced that it was acquiring the magazine publishing division of VNU from the consortium, which covered the company’s titles in the Netherlands and other European countries.

“Media has historically been an attractive investment sector in the Netherlands, with houses like Apax having acquired assets in the past, and I think it will continue to provide deals in 2007,” says Menno Antal, head of 3i in the Benelux region.

The cable sector has also been extremely active in the Netherlands, following the consolidation trend seen also in other parts of Europe.

Cinven and Warburg Pincus acquired the country’s third-largest cable operator, Casema, from a private equity consortium including Carlyle and Providence.

Warburg Pincus incorporated its stake in cable company Multikabel, bringing the total value of the transaction to €2.9bn. To this was added Essent Kabelcom, the country’s second-largest cable operator, which was acquired for €2.6bn.

The three merged companies will have more than 3m customers and would have had revenues of about €870m for calendar year 2005.

Antal adds that transport logistics is another sector in which the Netherlands has been strong, due to its geographical position. Dutch transport multinational TNT sold its logistics division to Apollo Management and it is the presence in the Netherlands of large, international corporates such as TNT that has helped fuel private equity activity.

Another big corporate, Philips, was responsible for the largest deal last year when it spun off its semiconductor business to a consortium including KKR, Bain Capital and Apax. The company, renamed NXP, is now Europe’s second-largest in the sector and the deal was Europe’s largest ever technology LBO.

“The Netherlands is already becoming a fairly mature market, thanks to divestments by many of the large corporates based there and the profile of private equity is pretty high,” says Antal.

He adds that the activity of private equity houses and hedge funds has created a community of active shareholders in the Netherlands and that the contribution of buyouts to the country’s economy is increasingly being recognised.

Apart from the larger deals, there are a host of smaller and mid-sized transactions, many of which stem from succession issues in family-run companies that were started after the Second World War.

“A lot of Dutch companies were founded five or 10 years after the war and are now facing succession issues,” says Bart Jonkman, co-founder of corporate finance boutique BlueMind.

As an indication of the size of this potential market, Jonkman points out that there are 75,000 to 90,000 small and mid-sized family-owned companies in the Netherlands. Of particular interest for private equity investors, he believes, are the raft of companies supplying large corporates.

“We’re based in the south of Holland, where there are a lot of manufacturing and engineering companies surrounding multinationals like Philips, Jonkman says. “There are also many companies whose value is based on intellectual property, such as ICT and professional services firms, that are of interest to private equity funds.”

He notes that many Dutch private equity funds are targeting smaller or mid-market deals because of the increasing competition for larger assets from the international houses. 3i’s Antal agrees that there are a lot of good opportunities in the mid-market.

“We’ve done some good deals in the €300m–€700m bracket, such as the VNU magazine transaction and the acquisition of heavy transportation company Dockwise Transport,” he says.

Dockwise, which was acquired in December last year, is a global market specialist in heavy-lift transportation for the marine and oil and gas industries. It transports large structures such as oil rigs and submarines.

Mounir “Moose” Guen, chief executive of MVision Private Equity Advisers, says that historically the Benelux region has been seen as a small niche market with many captive private equity players.

However, he says: “In recent years more teams have become independent and more hands-on in terms of their portfolios, which has led to some outstanding performance and returns.”

For example, in 2006 the Netherlands’ AlpInvest Partners, which is Europe’s largest private equity investor, spun out its mid-market buyout team to become Taros Capital.

Another Dutch house, Gilde, was spun out of Rabobank in 2005 and last year it raised its first fund as an independent, attracting its target of €600m. The fund will concentrate on the mid-market in the Benelux region as well as parts of France and German-speaking Europe.

Another successful fundraising was carried out by Waterland Private Equity, whose third fund closed on €400m. Moose Guen, who advised on the fundraising, says that the Benelux region’s closeness to the highly industrialised Rhineland means that investors often like to broaden their focus beyond the Benelux countries to include parts of Germany.

“There’s this wider region, in which the peoples have some affinity with each other and that’s why the Waterland fund covers the Rhineland region but includes the Netherlands and Belgium,” Guen says.

In Belgium, there were far fewer sizeable deals last year than in the Netherlands. But many see the country as a maturing market and believe there are encouraging signs for future development.

“In the EVCA’s ranking of countries’ attractiveness to private equity last December, Belgium came fourth, behind Ireland, France and the UK but ahead of Holland and Germany,” says Erwin Simons, a corporate partner at DLA Piper in Belgium.

The reasons for this increasing attractiveness, according to the EVCA, include the large number of valuable family businesses that are in need of new funds to finance growth. There have also been a number of legal and tax reforms in recent years aimed at improving the local business environment.

These include the adoption of notional interest deduction, which reduces the difference in tax treatment between debt funding and equity funding and makes acquiring Belgian companies more attractive from a tax perspective. There has also been encouragement from the government for pension funds and insurers to invest in private equity.

On the downside, the main barriers from a legal viewpoint are financial assistance rules that prevent acquisition debt being set off against income created by the target company, says Simons, and this is also an issue in other European countries.

“Another barrier to activity is the absence of tax consolidation,” he notes. “Despite this, since 2003 the Belgian market has been developing significantly and we see 10 to 20 decent-sized deals a year, plus many more smaller transactions.”

Among the more interesting transactions last year were 3i’s acquisition of freight and logistics company ABX Logistics; the sale by British convenience food group Uniq of its Belgian salads unit to Benelux house Gilde; and Carlyle’s acquisition of fleet management company Transics.

The ABX Logistics deal was particularly significant, argues Simons, because it was effectively a privatisation. “It wasn’t sold for much money because it was heavily in debt, but it was an important deal symbolically because it was a sizeable company sold by the state-controlled Belgian Railways,” he says.

As well as buyout activity, there is also some interest in venture capital investment. The Flemish government has a programme called ARKimedes, which aims to boost such investment in small and medium-sized companies.

“Belgian companies are becoming more open to external capital and there are a lot of smaller private equity funds, many owned by wealthy families, investing in small companies,” says Simons.

He believes that, while Belgium will never be as big a buyout market as its neighbour, it can grow significantly in the coming years. “There’s quite a bit of interest, for example, in taking listed Belgian companies private,” he says.