Benelux unbundled

These two countries are often lumped together in the Benelux but the Netherlands and Belgium have different cultures and economies. The Netherlands is a much larger outward looking economy. There are numerous Dutch international companies such as Unilever and Shell. Belgium has far fewer international companies than its neighbour and its division between French and Flemish speaking regions has made its economy more fragmented.

In the Benelux countries buyout activity was dominated last year by large transactions in the Netherlands, one of Europe’s most mature private equity markets. But there is also increasing interest in Belgium, which is now regarded as having one of the best legal and tax environments for investment.

Most of the private equity activity in the Benelux countries is focused in the Netherlands, although activity is growing in Belgium. Luxembourg’s tiny size means there are very few transactions there of significant scale.

Last year the Netherlands witnessed a number of large deals. These included the €8bn sale of Philips Semiconductors, the acquisition of market research and publishing company VNU for €7.5bn and the sale by TNT of its logistics arm for €1.5bn. There were also a couple of large cable deals, with Cinven and Warburg Pincus acquiring Casema, the Netherlands’ third-largest cable operator, and then Essent Kabelcom, the second largest. More recently, CVC and KKR announced at the end of January their acquisition of waste service provider Van Gansewinkel Groep, which the two aim to merge with AVR, another waste company that the buyout houses acquired less than a year previously.

In Belgium large deals were much thinner on the ground. Among the significant transactions there were 3i’s purchase of freight and logistics company ABX Logistics, regional firm Gilde’s acquisition of convenience food group Uniq’s Belgian salads unit and the sale of fleet management company Transics to Carlyle.

Total deal value in the Netherlands was around €25bn, says Alex Shivananda, head of HgCapital’s Benelux office in Amsterdam. “It’s been very busy in the Netherlands and we’re seeing more public-to-privates,” he says.

Robert Thole, managing director of mid-market private equity house Gilde, which spun out of Rabobank in 2005, says the Netherlands is a developed private equity market whereas Belgium is still in the process of developing. “People often lump the countries together in the Benelux but the Netherlands and Belgium have quite different cultures and economies,” he says.

The Netherlands is a larger economy and one that has historically been very outward looking and trading-oriented. There are numerous Dutch, or part-Dutch, international companies, such as Philips, Unilever and Shell. The Netherlands also has a highly developed banking and capital markets system, with banks such as ABN AMRO and ING.

Belgium has far fewer international companies than its neighbour and its division between the French and Flemish-speaking regions has made its economy more fragmented.

“Because the Netherlands has more large conglomerates, there are more buyout opportunities through companies being spun out,” says Thole. He says that Gilde has done four deals in the region in the last 12 months in sectors such as retail, chemicals and automotive. “There are definitely opportunities and even though there are more and more auctions, especially in the Netherlands, you can still do some good deals.”

As a regional player, Gilde aims to source deals through its local contacts with company owners, management teams and M&A advisers. It has particular expertise in some sectors, such as food, but invests across different industries, says Thole. Among its investments in the Netherlands last year was the acquisition of shrimp processing and distribution company Heiploeg. In Belgium Gilde, with CVC, acquired fencing manufacturer Bekaert Fencing.

Last year Gilde closed its third buyout fund and the first as an independent house, raising its target of €600m. Thole says: “A lot of the private equity money being raised is still going to the very large funds but we think there’s still an appetite for national or regionally focused funds, where the fund managers have good contacts on the ground.”

Despite, or perhaps because of, the high level of buyout activity there has been a major debate in the Netherlands about whether private equity is playing a positive role in the economy. In an echo of comments made by a German politician, last summer the Dutch minister for the economy warned that some investment funds were behaving “like locusts devouring one company after another”. The comments came after two activist hedge funds called for the break-up of Dutch retailer Ahold.

According to Andries Mak van Waay, a partner at PricewaterhouseCoopers in Amsterdam, the debate included a lot of “misguided comment” in which participants lumped together private equity with hedge funds. “Some people were criticising the short-term nature of these investors and not realising that for private equity to exit an investment it needs to create value,” says van Waay.

Robert Thole of Gilde agrees that there was some confusion in the way the discussion was carried out in the media: “It was a generalised debate about institutional investment in the Netherlands, focusing on shareholder activism and the role of hedge funds, but the lines between these funds and private equity became rather blurred.” He adds that it was transactions such as the take-private of VNU that triggered the controversy: “When people see large, quoted companies like VNU taken private they start to ask questions about corporate governance and regulation, but it’s not the sort of fierce criticism that has been seen in Germany.”

The future for take-privates is being thrashed out in a Dutch court, with activist hedge funds Centaurus Capital and Paulson seeking to gain control of industrial conglomerate Stork. The company is resisting calls from the hedge funds to sell off all but its aerospace division and it tried unlawfully to use a poison pill defence to block shareholder calls to dismiss its board.

The confrontation highlights the differences between what many see as an Anglo-Saxon model in which shareholders have complete control and the Continental European tradition of consulting all stakeholders. Johan Kleyn, a partner at law firm Allen & Overy in Amsterdam, says the case is highly significant: “The court’s decision requiring Stork to withdraw its poison pill is important and the case will indicate how far hedge funds can go in acquiring listed companies.”

Kleyn says that he expects the trend for ever-larger buyouts to continue in the Netherlands. “What is driving the market is the huge sums of buyout money available and the fact that the Netherlands has quite an open economy and capital markets,” he says. But there are some fears in the market about what will happen if there is a significant change, such as rising interest rates. “There’s a feeling that the banks may try to reduce levels of leverage because some of the banks came under pressure in the recent public debate on private equity,” says Kleyn.

Despite the controversy around shareholder activism, Gilde’s Robert Thole says he expects that there will be more PTPs in the Netherlands. “We’re working on one right now,” he says.

One of the main factors holding back the growth of the PTP market, says PwC’s Andries Mak van Waay, is the fact that such transactions tend to be quite complex: “You’ll often find that a private equity house is keen on one or two bits of a quoted company but not all of it, which means there needs to be a fairly large restructuring post-acquisition.” This can be seen in the acquisition of VNU in early 2006 by a consortium including KKR, Carlyle and Blackstone. At the end of 2006 the consortium negotiated the sale of the magazine arm of VNU to 3i, while holding onto the more lucrative market research part of the company.

While not strictly a PTP, one of the possible deals in the pipeline is the sale of Organon BioSciences, the drugs company that parent Akzo Nobel was planning to float. Instead of going to IPO there have been reports that two private equity consortia, one led by Blackstone the other by KKR, have been invited to bid. If it comes off it will be a very big deal, as Organon’s value has been put at more than €9bn by sector analysts.

In recent years deals such as Organon have attracted a growing number of international houses to set up shop in the Netherlands. “We opened our office here two years ago because we wanted to be closer to the market and to build a network,” says HgCapital’s Shivananda. Other firms like CVC and 3i have had Dutch offices for more than five years.

This increased competition makes it harder to pick up bargains, says Shivananda: “It’s a mature market that is well advised and where vendors have become smarter,” he says. HgCapital and some of the other houses with Dutch offices will run their Belgian operations from the Netherlands. Others will cover Belgium from London or Paris.

Andre-Xavier Cooreman, chairman of the Belgian Venturing Association (BVA) and chief operating officer of private equity house Sofinim, says that he expects investment in private equity and venture to more than double from their 2005 level of nearly €200m.

Among Sofinim’s investments last year were taking a stake in truck trader and repair company Turbo’s Hoet and in particle board and flooring company SpanoGroup.

He says that the country is gradually maturing as a private equity market but that there is still suspicion of private equity among many family-owned companies: “They see private equity as being about asset-stripping and over-leveraging companies.”

Because of this, venture capital or private equity houses approaching Belgian companies in an ‘Anglo-Saxon’ way are likely to fail, he says. “It’s important to approach companies from an industrial rather than a financial perspective and to show you are interested in developing the company and not just seeing it as an asset.”

This is particularly true in the southern, French-speaking part of the country, where companies tend to be smaller and where trade unions are more powerful.

Despite these obstacles, Belgium is likely to provide an increasing flow of transactions, he believes, and there are other positive trends such as the buoyancy of the Belgian IPO market.

“Belgium is gradually becoming more open to private equity and venture investment, but it’s important for investors to understand the hesitancy among some family owners of companies,” he says.