Dutch MPs unveil green paper against private equity

Traditionally a reserved industry, private equity has nonetheless endured its fair share of the spotlight in the Netherlands in 2015. Months of headlines around distressed portfolio companies have pushed the sector right into the heart of the public debate and politicians have been quick to make their move. After questioning private equity heavyweights 3i and KKR at a roundtable in April, Labour MP and finance spokesman Henk Nijboer promised he would work on a proposal for legal reform; more than half a year later, the envisioned policy changes are at last on the table.

For starters, Nijboer is keen on closing the loopholes that, he insists, remain in the tax changes passed by the previous cabinet in 2011. At the time, a decision was made for tax deductions on debt interest to be limited for takeovers leveraged beyond the 60% mark. The rule only applied to newcos set up after 2011 yet, according to the Labour MP, holdings from before that year are being retained in today's buyouts as a means of capitalising on continued exemption.

The Dutch coalition cabinet, a bipartisan affair formed between right-wing VVD and Labour after the elections in 2012, recently echoed Nijboer's views on tax loopholes and endeavoured to fix them. Local private equity body NVP welcomes the government's position. "We've always agreed with the goals of the 2011 tax measures and if there are loopholes, we agree that they must be repaired," NVP director Tjarda Molenaar tells unquote".

New industry code to appease LPs
Tax changes aside, Nijboer's green paper proposes caps on the debt burden placed on a business upon a takeover; increased liability for shareholders attracting loans or handing out dividends if their company goes under and; improved fee and expenses reporting by private equity houses. The last demand resonates strongly in the Netherlands, a country where the fee controversy heated up over pension fund giant PGGM and its decision last summer to stop backing fee-opaque managers by 2020; unsurprisingly, PGGM recently endorsed Labour's call for greater GP transparency.

In the face of policymaker and LP unrest, NVP has decided to revamp its code of conduct to bring reporting guidelines in line with Invest Europe's handbook. In addition, the Dutch private equity association will strive to better inform works councils about their rights during a takeover; the weak position of employee representatives while a deal is negotiated was one of Nijboer's grievances. NVP's pledge for change was described by new chair Annemarie Jorritsma as the result of a "critical self-reflection" by the industry body.

A former deputy prime minister, Jorritsma was appointed to her role in September and will be NVP's visible face as her past colleagues at liberal VVD decide how many of Nijboer's changes go through. According to Molenaar, a first meeting could be held around spring for the Labour MP to defend his proposals in front of the cabinet. The green paper will then enter the parliamentary arena – the tax-related changes will likely make it to the 2017 fiscal plan that the Dutch government will prepare as the budget debate kicks off in October, Molenaar adds.

Fighting the image battle
According to NVP's director, the association feels satisfied with the cabinet's disposition since the controversy broke out: "They have acknowledged the contribution that private equity makes to the Dutch economy, which is a positive thing. It is clear that there is work to be done and we agree with the government on what needs to be done."

However, move onto the Labour ranks – starting with Nijboer himself – and things have not always been as constructive, says Molenaar's colleague and NVP public affairs manager Marc van Voorst tot Voorst: "We were disappointed about how private equity was spoken of as a 'predator' by Labour. This created quite a negative image in the media of the industry and its people."

Although still abrasive, Labour's tone has softened somewhat; Nijboer himself visited Egeria-backed exhaust manufacturer M&G to learn the company's private equity story. Along with several others, the experience convinced NVP that communication is a vital weapon for the industry's fight against its image problems in the Netherlands. "It is only right that people have opinions, that there will be misunderstandings," says Molenaar. "We need to blame ourselves if we're not communicating better – it is up to us to do something about it."

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