Dutch MPs sharpen attack on private equity

The preliminary document, yet to be debated in parliament, follows a roundtable held in April, which brought together private equity firms, politicians and experts. Pier de Jong, managing partner of 3i, along with KKR's head of EMEA Corporate Affairs Ludo Bammens and Anders Investments CEO Gert-Jan Huisman attended the roundtable, with an audience comprising six political parties, employer associations, economists and academics. The trio attempted to dispel fears over debt levels and layoffs within private equity-backed companies.

Spurred on by media coverage, a number of unsettling post-deal developments have dragged Dutch private equity under the public spotlight. From publisher NRC Media, burdened by debt woes while majority shareholder Egeria reaped a €12.5m special dividend; to HIG-owned, bankruptcy-filing Estro Group, the list has set off alarm bells among MPs and stirred the policy-changing wheel into motion.

Measures against ‘easy money'
Spearheading the calls for action is Henk Nijboer, Labour's finance spokesman, who is keen to tackle what he perceives as an "unhealthy corporate culture" among private equity houses in the Netherlands. Although merely words for now, Nijboer's statement may be a preamble to future reforms. In May, his party announced a green paper containing six proposals against ‘easy money'-seekers.

For one, Labour wishes to prevent private equity-backed companies from using their assets as collateral for debt acquired upon a buyout. In addition, the party wants stricter controls on the compensation structure for investors and greater liability for shareholders, auditors and CEOs that make irresponsible decisions. The document also recommends a stronger position for works councils – representative bodies present in every Dutch company with more than 50 employees.

Unsurprisingly, the tax regime for debt interest remains a hotspot in the debate after legal changes were made by prime minister Mark Rutte's previous, Labour-free, cabinet in 2011. Although caps were introduced to keep interest deduction to less than 60% of the purchase price, these efforts were deemed insufficient by Labour, which is now intent on "repairing the leaks" within the interest deduction scheme. 

Seemingly indifferent to the controversy they inspire, debt levels in the Dutch private equity and venture capital industry have stayed on an even keel for the past eight years, according to the latest available data. A survey by EVCA-coordinated PEREP Analytics examined 475 buyout transactions by 150 firms in the country between 2007-2014 and found them, on average, to be leveraged at 50-60%. A significant drop was detected within the >€250m space, from more than 80% in 2007 to less than 60% in 2014.

Tax overhaul
"The changes to the debt tax regime for acquisition holdings in 2011 took years to negotiate, yet we see calls for them to be revised three years after they were introduced. Instead, we would support following Italy's and Belgium's lead in lessening the fiscal penalty on the use of equity via tax deductions," says Felix Zwart, regulatory affairs manager at the Dutch Private Equity and Venture Capital Association (NVP).

NVP attended April's roundtable and noted a diverse spectrum of opinions on private equity among attending MPs; from the openly critical stance of Labour and the Socialist party, to the more receptive Democrats 66 and Christian Democratic Appeal and the still-mistrustful Party for Freedom.

Although the association acknowledges the possibility that Labour's green paper could translate into policy changes in future, that is still a distant scenario, according to NVP's public affairs manager Mark van Voorst tot Voorst. "These are preliminary ideas that Labour has communicated, so we don't know which will make it into their final paper. Then the document needs to be presented before parliament. Although there may be currently a small majority on the matter, that does not guarantee all six measures will go forward, as some parties might disagree with some [measures] on an individual basis," he explains.

According to NVP, it is unlikely that Rutte's VVD party, a supporter of private equity, will side with Labour. "There is, however, a possibility that changes to private equity legislation will take place as part of a larger tax overhaul expected either this year or next. At any rate, we expect Labour's proposals to change, to become more specific, at some point before the summer recess", says van Voorst tot Voorst.

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