Benelux: alternative lenders to the rescue

Last month, unquote" recorded substantially diminished dealflow in the Benelux market. Since the start of the year, deal numbers have decreased consistently, from 12 in January and February to eight in April and May to just six in June, according to unquote" data.

Despite the falling deal numbers, several alternative lenders have been adopting a region-specific approach. While this is nothing new for some of these players, for others, a focus on the region is a more recent development.

Investec is one of the new additions to the market. A couple of years ago, the alternative lender launched a targeted roadshow in the region, setting out to assess local activity and meet as many local private equity houses and advisers as possible.

"The feedback we got was very strong, with market players mentioning they would be pleased to see additional lenders with specific focus on the region," says Alexandre Neiss, a member of Investec's corporate and acquisition finance team. Callum Bell, who heads the team, concurs: "The market is crying out for new players."

Benelux banks have suffered much less from the financial crisis than UK banks. So while they might have a competitive approach when it comes to fees, they also have stronger balance sheets and are more able to supply local businesses with debt" – Remko Hilhorst, IK Investment Partners

Keen to build on the positive response received during the roadshow, Investec began participating in local deals. Over the last 18 months, the firm closed seven deals in the region – all of which were Netherlands-based – ranging from underwritten commitments to unitranche financings and club deals. Non-UK deals currently account for around 50% of the firm's transactions, the pair explains, all of these happening in either Germany or Benelux.

Bell, however, explains one of the biggest challenges in the region is the "protective" approach of local lenders. "Incumbent banks can be highly competitive on pricing, for example," he says.

Another challenge for debt providers of the likes of Investec might be the lack of popularity of alternative lending in the region, says Remko Hilhorst, partner and head of the Benelux team at IK Investment Partners. "Benelux banks have suffered much less from the financial crisis than UK banks," he explains. "So while they might have a competitive approach when it comes to fees, they also have stronger balance sheets and are more able to supply local businesses with debt, which explains the limited need of alternative lending over here."

Opening the gates
This traditional approach and apparent absence of flexibility when it comes to debt financing might, however, provide a gateway for alternative lenders to make their way in.

For Laurent Bouvier, managing partner at Kartesia Advisor, a pan-European alternative debt provider, the best way to demonstrate the benefits of flexible financing methods in a market that he describes as "traditional, with very faithful banks", is via the secondary market: "Once banks have witnessed our positive input in secondary transactions, they'll be more inclined to establish partnerships with us on certain deals, where we can provide mezzanine debt, for instance."

Another aspect to take into account is that while local banks may be able to provide financing for transactions of a limited size, issues may arise when it comes to larger ones. "For larger deals, one needs to access the international market," insists Kristian Nieuwenburg, head of EQT Partners Benelux. "Local banks do need the help of global players when it comes to large financing operations."

For larger deals, one needs to access the international market. Local banks do need the help of global players when it comes to large financing operations" – Kristian Nieuwenburg, EQT

Investec's Bell echoes this sentiment, outlining a desire to partner with local banks for mid-market transactions.

He adds: "There aren't a huge number of deals in the region, but you have to put this into perspective and relate it to the size of the market. We see great potential in it – the dealflow has been robust, and we don't see Brexit having a major effect on the local deals if market certainty holds up."

Given the region's size, large deals are likely to remain few and far between. However, the revived deal talks surrounding Philips' potential sale of its lighting division – expected to be worth around £2bn – has already attracted at least one private equity firm. If successful, alternative lenders will no doubt be chomping at the bit to participate in the upcoming deal and show off their credentials to the local market, which could in turn encourage more of these large-cap transactions.

Further reading

• Financing

Golden age for debt funds in Germany?

• 11 Apr 2016

• Financing

New rules for Italian debt create opening for alternatives

• 17 Jun 2016

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