New heights in the lowlands

Buyouts are booming in the Benelux region, with 2006 volumes already breaking records as mega-deals make the headlines. Competition for assets is intense and private equity firms have had to evolve strategically to differentiate themselves from the pack. Joanna Hickey reports.

Benelux buyout volumes are soaring, with the last two years in particular delivering an unprecedented level of activity. High-profile transactions have emerged from all three countries in the last 12 months, from 3i's €80 million ($103 million) purchase of Belgium's ABX Logistics, to the €2.1 billion LBO of Luxembourg-based TV broadcaster SBS Broadcasting by Permira and KKR, and the landmark €8.7 billion public to private (PTP) of Dutch publisher VNU.

VNU was not only the largest buyout the Benelux region has ever seen, but also one of Europe's biggestever deals. Another vast Dutch PTP emerged in August when 80.1 percent of Philips' €8.3 billion semiconductors business was acquired by KKR, Silver Lake Partners and Alpinvest Partners. Rumours also suggest private equity firms are circling Dutch supermarket chain Ahold, valued at around €11 billion.

2006 has already racked up higher buyout volumes than any previous full year, at $32.6 billion by early August, compared with $25.6 billion in 2005; $13.7 billion in 2004; and just $1.4 billion in 2003 (source: Dealogic). Sectors garnering particular attention include: media and publishing; distribution; telecoms; food and beverages; outsourcing; business services; and, more recently, renewable energy. “Prior to 2003, the Benelux region had only seen small to mid-sized deals done mostly by local private equity firms. So the last year in particular has been a revelation,” says Frank de Leenheer, head of investor relations at Belgian private equity firm GIMV.

Behind the headline deals, the three countries continue to evolve at very different paces, however. Given its longevity, with a private equity market stemming back to the 1960s, the Netherlands remains by far the biggest and most mature of the three. 35 of this year's 47 Benelux buyouts and a whopping $31.9 billion of the $32.6 billion total volume have emanated from the Netherlands, with Belgium accounting for the other $614 million, from 11 deals, according to Dealogic. Unlike the rest of Western Europe, where corporate divestments and secondary buyouts dominate deal flow, Dutch LBOs involved a broad mix of family sales, corporate spin-outs, privatisations and secondaries.

At the upper end of the Dutch market, activity started to balloon in 2004, when larger, more complex transactions started to emerge, enhancing the already thriving midmarket.

Notable deals in 2004 included the LBO of newspaper publisher PCM Uitgevers; the milestone €1.5 billion PTP of retailer Vendex; and the €2.1 billion VNU World Directories deal.

After an equally solid 2005, which saw Kappa Packaging, InterGen and buy-and-build success Yellow Brick Road hit the books, the Dutch market ignited in 2006. In addition to VNU and Philips' Semiconductors, August saw auctions get underway for mail group TNT's €2 billion logistics division and state-owned publisher SDU. This followed the €1.4 billion buyout of state-owned waste management firm AVR by KKR and CVC in January and the buyouts by Cinven and Warburg Pincus of cable operator Casema for €2.1 billion in July and Essent Kabelcom for €2.6 billion in early August.

Following the precedent of Yellow Brick Road, the region is set to provide another of Europe's most notable examples of buy-and-build as Cinven and Warburg Pincus plan to combine Casema and Essent Kablecom with existing portfolio company, Multikabel, to create a market leader.

In neighbouring Belgium, meanwhile, buyouts are also at an all-time high, with a record 30 deals seen last year – almost double 2004 levels, according to Dealogic. Unlike in the Netherlands, however, this sudden spurt in activity comes from a far smaller base. “Belgium's LBO market was previously surprisingly small given the size of the country, but it has really picked up in the last two years,” says Marc Staal, managing partner at ABN AMRO Capital.

The country's attention first started to focus on buyouts in 2003, with Candover's €1 billion buyout of hygiene products group Ontex, followed by Doughty Hanson's €600 LBO of carpet maker Balta in 2004. The following year saw the LBO of ground handling firm Aviapartner, while 2006 has already yielded ABX Logistics and two deals led by Carlyle Group – the $603 million buyout of Belgian Refining Corp and software provider S1 Corp's Belgian-based FRS division.

Yet despite the significant rise in volume in the last two years, Belgium has yet to deliver the €1 billion-plus buyouts that neighbouring Netherlands has produced, remaining mostly small to mid-market in nature. Also, as Belgium's corporate landscape is dominated by family-owned businesses, which form the backbone of the economy, most deals (including Ontex and Aviapartner) emanate from this source. With many more families now facing succession issues, Belgium is tipped to be a greater source of investment for sponsors in future.

“Family buyouts already dominate Belgian deal flow but, given the vast number of firms now facing succession issues, we expect many more in the next few years. This will really boost Belgian volumes, which have been just a tiny fraction of those in the Netherlands to date,” says Alex Shivananda, head of the Benelux office at HgCapital.

Such deals are also expected to rise in Holland, as, throughout the Benelux, cultural impediments to selling to private equity are disappearing fast. “A few years ago, private equity was viewed quite negatively in many Continental European countries, especially in Belgium, but this wariness is changing rapidly now,” says Alain Kinsch, a partner at Ernst & Young in Luxembourg.

Positive publicity from recent deals is prompting more owners to choose private equity as an exit alternative. “The message that private equity is an additional exit route for companies with succession issues has hit home,” says GIMV's de Leenheer.

The diminutive Luxembourg, meanwhile, lags far behind its neighbours in terms of buyout activity, due to its comparative lack of corporate infrastructure and SMEs. It remains principally a major financial services and investment fund centre, due to its favourable tax regime. Even so, Luxembourg chalked up seven buyouts totalling $4.5 billion last year (Dealogic) – an all-time record for the Duchy. Some sponsors say volumes could rise further.

The country plays an additional major role in the Benelux buyout scene because of the many holding companies of LBO targets that are based there for tax purposes.

The recent spate of high-profile deals has only served to intensify competition for assets, with a host of private equity firms now swarming over the region. Together with the deep debt market liquidity from both local and international banks, this has caused purchase prices to rocket, as in the rest of Western Europe.

The competitive landscape started to change about three to four years ago. Since then, a plethora of international sponsors have entered the region and, as the fight for targets has escalated, many have started looking lower down the deal curve. “The market is so competitive now. Any deal over €200 million is wide open to everyone. Only deals below €100 million are purely the domain of the local firms now,” says ABN's Staal.

Domestic operators such as ABN AMRO Capital, Gilde, GIMV, KBC Private Equity, Fortis Private Equity, Bencis, Rabo Participaties and NPM now have to contend with international firms such as Candover, CVC, Industri Kapital, HgCapital, 3i and, at the top end, the likes of KKR and Carlyle. 3i, Advent, CVC and HgCapital all have offices in Amsterdam, illustrating the extent of international commitment to the region.

Purchase prices are also being driven higher by corporate buyers, which have re-entered the M&A stage with a vengeance. They are once again proving formidable adversaries – as seen with Mohawk Industries' triumph in the $2.6 billion bidding war for Belgian floormaker Unilin last year. “Corporate buyers have become a lot more aggressive over the last year. Lots more deals – like RTD in the Netherlands and Belpan in Belgium – have gone to trade,” says HgCapital's Shivananda.

Company valuations are also rising because of the propensity to hold auctions – and not just at the upper end of the market. As a result, even though the sub-€200 million space has not seen a large influx of new players in the last five years, valuations have still increased. “Auctions are held for nearly all small LBOs too now. This is something new for our part of the market. Two years ago, most deals were proprietary,” says GIMV's de Leenheer.

Naturally, however, rivalry is fiercest in the more mature Dutch market, especially for large LBOs. Belgium is generally regarded as less cut-throat, as deals are smaller and tend to be auctioned less broadly. As a result, Belgium is often viewed as a more interesting source of assets, with opportunities for arbitrage and inefficiencies to exploit. “Deals are not auctioned as broadly in Belgium and the buyout process is still not as widely known among management teams. Although this requires more education work when negotiating, it means there is less chance of the price inflation you see in the Netherlands,” says HgCapital's Shivananda.


Belgium Luxembourg Netherlands Total
Announcement Date Deal Value Deal Value Deal Value Deal Value
by Year ($m) No. ($m) No. ($m) No. ($m) No.
2001 905 7 6 2 1,601 16 2,512 25
2002 31 4 101 2 3,302 18 3,433 24
2003 4 4 0 0 1,352 24 1,356 28
2004 2,002 16 940 3 10,722 25 13,663 44
2005 1,701 29 4,552 7 16,685 59 22,938 95
2006 YTD 614 11 0 1 31,962 35 32,576 47