Beneath big buyouts

Private equity became big news in the Benelux region recently after international financial investors completed a string of large and high profile LBOs. But what is happening on the ground, in the region's locally dominated mid-market and in the venture space? Colm Gilmore finds out

Established buyout fund managers in Belgium, the Netherlands and Luxembourg appear fairly content with their lot. Pointing to the size of the region and the number of deals that come along, they speak of healthy competition, but enough purchasable assets to go round.

But do note it is the mid-market they're talking about. Unsurprisingly therefore, the big-ticket, attentiongrabbing deals that recently stoked media attention bypassed the local fund managers and went to the internationally operating UK, US or pan- European buyout houses that hoover up such opportunities not just in this region but across all of Europe.

Thus, when Amsterdam-based publishing company PCM Uitgevers was recently put up for sale, it was global firm Apax Partners who came first with an agreement in June to pay €720 million ($865 million) for a 52.5 percent stake.

The deal set tongues wagging and pens scribbling. Because the assets Apax acquired included some of Holland's most widely read publications, including de Volkskrant, NRC Hadelsbad and Algemeen Dagblad, the sale to a financial investor attracted significant coverage in the press from journalists who voiced concerns about their independence under the new owners. To alleviate the concerns, Apax conducted sensitive negotiations with the selling shareholder, a not-for-profit trust dominated by what one Dutch corporate advisor describes as “liberal Amsterdam intelligentsia”. The talks further raised the profile of private equity in the Dutch media.

An even more visible deal was the recent acquisition of Royal Vendex, an omnipresent Dutch non-food retailer founded in 1870. As one Utrecht-based fund manager puts it: “Fifteen million people shop at Vendex. Everyone knows it. It's a very public private equity transaction.” In June, global buyout firm Kohlberg Kravis Robertsand AlpInvest Partners led the winning consortium and agreed to pay €1.4 billion for the retailer.

Add to this some recent big-ticket transactions in Belgium such as pan- European firm Doughty Hanson's €600 million acquisition of a majority stake in carpet manufacturer Balta Industries and London headquartered Candover's €320 million purchase of the film manufacturing division of quoted Belgian pharmaceutical company UCB Group, and it is clear to see that a wide range of international equity houses are ramping up their interest in the region.

Even Luxembourg is becoming an attractive destination for private equity euros now, as evidenced by the recent €125 million Apax-led acquisition of automotive safety system developer International Electronics and Engineering.

The globalisation of the Benelux marketplace for large LBOs doesn't surprise Zoran van Gessel, managing director of Utrecht-based and midmarket focused Nesbic Buyout Fund. Neither does it worry him: “The business is definitely changing. Procedures are becoming more standardised and private equity has a global perspective. However, we can still benefit from a local touch and knowledge. You need to be local to do local deals at our market cap.”

According to van Gessel, size matters: “Nesbic Buyout Fund is one of the bigger ones of the small guys, but not even the smallest one of the big guys. We like the mid-size market below the radar screen of the big players.”

Nesbic's €170 million debut fund is fully invested. Market sources expect that the firm, whose name is about to change to Bencis Capital Partners, will close a new €200 million fund later this year. Van Gessel declined to comment on this issue.

Although the new fund will have a different name, it will be housed in the same offices and managed by the same team. The same investment strategy of investing in buyout opportunities of established companies with good cash flows in mature economies will also continue.

Dutch private equity is a small world. Van Gessel, alongside his partner Jeroen Pit, earlier in his career worked at Dutch investment bank MeesPierson. There he met Peter Visser, managing partner of Nesbic competitor Egeria. Visser's relationships with Egeria co-founder Jan Niessen and portfolio manager Caroline Huyskes also date back to the days at MeesPierson.

Egeria operates in the same sphere as Nesbic, but has a different and slightly unusual organisational makeup. Egeria was set up in 1997 with an initial €32 million commitment from the Brenninkmeijer family who were then seeking to move into private equity. The evergreen Egeria I fund is now closed and fully invested, having committed €170 million to 18 transactions. Of those 18, 11 have been realised and Visser expects a further three to be completed before the end of the year.

The firm is now organising Egeria II, a larger fund with a traditional closeend structure. A €250 million cornerstone investment from the Brenninkmeijer family has already been secured. The aim is to raise between €400 million and €550 million overall from a range of Dutch and European institutional investors.

The stock exchange is the boulevard of broken dreams

Peter Visser

With a core of five investment professionals in an office of 11, Visser says that the close-knit team's strategy is straightforward: “We leverage our local knowledge to identify target companies with stable cash flows in defensible niches. We avoid capital-intensive businesses and don't do high-tech or chemicals. We only invest in companies we understand.” The firm aims to do four to five transactions per year and focuses on Dutch businesses, or “businesses with a Dutch link”.

That commitment to the Netherlands has small disadvantages that are outweighed by the positives, reckons Visser: “This is still a developing market in which we have an excellent track record. The Netherlands has a long history of trading and people here are proud to sell their businesses. There are definitely opportunities.”

The firm has already made two investments from the new fund, committing a combined €55 million to Muelink & Grol, a gas exhaust system manufacturer, and fast food company Ad van Geloven.

In terms of exits, Visser reckons that trade sales and secondaries are currently the most likely methods of exiting an investment: “The stock exchange is the boulevard of broken dreams,” he declares. Part of Egeria's ambition is to repair some of these dreams. Having gained – and kept – the trust of the Brenninkmeijer family, the task facing the firm is now to convince more investors of its merits.

If Egeria is a relative newcomer, Utrecht-headquartered firm Gilde has been around since 1982, when the firm raised the€€14 million Gilde Venture Fund I. Gilde now has five distinct funds – Buyout (€535 million), IT (€200 million), Biotechnology & Nutrition (€127 million), Participaties (€150 million evergreen) and Strategic Situations (€150 million) – managed by separate teams which, as one investment manager observes, operate truly independently of each other: “They occasionally meet in the canteen,” he says.

The Gilde Buyout Fund II has made 11 investments and three exits in Benelux and continental Europe and is now more than 50 percent invested. The “sweetspot” transaction size of the €535 million fund is in the €100 million to €200 million range. According to the investment manager, who asked not to be identified, the well-established name of Gilde helps in creating proprietary deal flow and opening doors.

In terms of exit activity, the source confirms the widely iterated view that the European IPO market is dead: “What we are mainly seeing is trade sales to strategic buyers and some secondary transactions. Most companies are too small to go to the stock exchange and we're seeing more multiple buyouts, which are becoming increasingly accepted.”

“We're seeing more deal flow in the region with continuing restructuring of portfolios, more secondaries and increasing awareness by managers of private equity”

In Belgium too, a steady flow of buyouts, some secondaries and increasing Anglo-American competition is the order of the day. Says Guy Mampaey, vice president of corporate investment at listed Belgian private equity firm GIMV: “After [the 2002, €625 million Candoversponsored acquisition of] Ontex, private equity got a lot of press coverage in Belgium and as a result family-owned businesses are more aware of financial buyers who can offer good prices.”

Although Mampaey reckons the Belgian buyout market is growing, it is still too small for his firm to have a specific sector focus. The size of the market also means that it is harder to find quality managers with MBI potential, and so most deals take the form of buyouts led by in cumbent management. Says Mampaey: “The focus is shifting towards buyouts. Amounts invested will be larger and managers will have fewer companies in their portfolio.”

As transaction sizes change in Belgium, with bigger deals getting swallowed up by large non-continental funds, some of the smaller, local players are decreasing in number. “Since [GIMV was set up in] 1980, a lot of firms have come and several have left the local market,” says Mampaey. Today competition comes not from within Belgium particularly, but also from some of the captive funds in the broader Benelux region that operate in the sphere, including Fortis, KBC and ABN AMRO Capital.

While the market is continually evolving, one member of this trio has been undergoing some significant internal change as well recently. From its Amsterdam base, ABN AMRO Capital remains one of the few wholly captive funds in the region. While the firm's French team is currently raising third party capital for the first time, and after the German operation spun out to become DDN Capital Partners in June, the group's Amsterdam office remains part of the European network investing the bank's money. However, according to managing director Marc Staal, the group may open up future funds to external investors.

In Amsterdam, Staal's team is aware of a pick-up in private equity opportunities: “We're seeing more deal flow in the region with continuing restructuring of portfolios, more secondaries and increasing awareness by managers of private equity. The PCM Uitgevers deal was very significant in that respect.”

MONEY IN, MONEY OUTDeal-making and fundraising in the Netherlands and Belgium in 2003

Fundraising Netherlands Belgium
Total funds raised 2003 €2.1 billion (+72% on 2002) €212 million (+70% on 2002)
Investors: Banks: 33% Corporates: 74.6%
Insurance companies: 16% Individuals: 12.7%
Funds of funds: 14% Government agencies: 7%
Corporates: 12% Banks: 2.9%
Pension funds: 11% Undisclosed: 2.8%
Individuals: 6%
Government agencies: 4.5%
Undisclosed: 3.5%
Total amount invested €1.1 billion (-37% on 2002) €304 million (-15% on 2002)
Types of investment:
Buyouts: 56% 59.7%
Expansion capital: 36.5% 24.6%
Replacement capital: 4.2% 3.3%
Seed & start-up: 3.3% 12.4%
Total number of exits 451 102
Amount realised €930 million €88 million