Troubled waters

The political debate about private equity that has been raging in the UK has, to a degree at least, been happening in the Netherlands as well. At an April hearing of the Dutch Parliament, left-leaning politicians and trade unions criticised private equity firms and hedge funds for plundering the country. This was the kind of emotional outburst that counterparts in Britain have become all too familiar with.

Mark Wetzels, investment director at Amsterdam-based mid-market GP Egeria, says: “Historically very little attention has been given to the asset class in the Netherlands – as in the UK – but the incidence of one or two very high-profile deals has whipped up a storm amongst politicians and trade unions, so that now private equity is top of the agenda.”

One of the discrepancies between the current debate in the UK and that in the Netherlands is that, in the former country, private equity has been criticised in isolation from other asset classes. In the latter, on the other hand, the criticism aimed at private equity and hedge funds has often been hard to distinguish – hinting perhaps at confusion about the nature of private equity investment.

Lex Douze, principal at Amsterdambased mid-market firm Waterland, says: “The fact that private equity and hedge funds have been criticised together in the Netherlands indicates a degree of misunderstanding about both asset classes – which, in reality, are obviously very different – and reflects the fact that both asset classes are younger and less developed than in the UK.”

Agrees Wetzels: “Private equity has not historically been a topic on the agenda in the Netherlands so the public, press and politicians have made assumptions about the asset class.”

Confusion may in part be attributed to one or two high-profile deals where the two asset classes have either held or sought ownership positions in the same business – Stork, the industrial group currently the subject of a €1.5 billion ($2.1 billion) offer from Candover (of which more below), being one example of this.

So far in the Netherlands, the criticism has been directed solely at the mega-sized international buyout funds rather than local mid-market funds. Says Douze: “The domestic mid-market has largely been kept out of the debate – it is the CVCs and other global mega-funds that have been portrayed as the real ‘plunderers’.” In the UK, too, the focus has been mainly on the larger end of the market although mid-market Duke Street Capital was forced to defend itself against allegations that it was planning a large number of lay-offs at one of its portfolio companies.

One clear difference between the UK and Dutch debates is that tax has not been a feature of the discussion in the Dutch Parliament. Explains Wetzels: “The tax structure in the Netherlands is very different from that in the UK so there has been no debate about partners' carry as there has been at the Treasury Select Committee. The crux of the debate in the Netherlands hinges on two points – transparency and leverage.”

STORK RUFFLES FEATHERS

The Stork saga has had a profound impact on the image of private equity in the Netherlands. It sowed the seeds for intense media and political interest in an asset class that has historically been completely off the radar

Mark Wetzels

As elsewhere, the Dutch debate appears to have been triggered by a few high-profile and controversial deals. One of these is Candover's ongoing attempt to take over Stork. Candover originally offered €1.5 billion or €47 a share for the Dutch industrial conglomerate in June. Last month, hedge funds Centaurus Capital and Paulson, which together own more than 30 percent of Stork, agreed to back Candover's bid for the business.

The controversy originally stemmed from the activist stance of the hedge funds, which began campaigning last year for the company to be split up. This aggressive approach first brought attention to bear on the motives of hedge funds. However, the apparent aim of Centaurus and Paulson for the business to be sold to private equity buyers meant private equity coming under the microscope as well.

Ponders Wetzels: “The Stork saga has had a profound impact on the image of private equity in the Netherlands. It sowed the seeds for intense media and political interest in an asset class that has historically been completely off the radar.”

Another deal that became a talking point in the Netherlands was Apax Partners' sale of Dutch publisher PCM in April 2007. When Apax walked away with a handsome profit while leaving the business with a considerable amount of leverage on its balance sheet, the media response was far from positive. Says a GP source: “The PCM deal triggered widespread concern about the amount of leverage in private equity deals – and a certain degree of jealousy about the profits made by buyout firms.”

So what are the implications of the debates currently raging for the image of private equity in the Netherlands? Deals like PCM and Stork have undeniably forced the asset class into the spotlight, but some feel it could emerge relatively unscathed.

Says Wetzels: “The discussions in the Dutch Parliament and the wider press attention have done very little damage to the industry. Yes, it will have to become less secretive and more transparent – but this is probably no bad thing.” In the Netherlands, as elsewhere, the hope is that the current storm will eventually blow over.