Fostering growth in Belgium's private equity market

The Belgian private equity market is typically marked by a milder dealflow than its Dutch neighbour, and the past couple of years did not buck this trend.

According to unquote" data, Belgium witnessed a huge drop in activity in 2016 compared with the previous year: the number of expansion transactions dropped to 16, albeit with a slightly superior aggregate value of around €244m, while only 14 buyouts were recorded for an aggregate value of €1.03bn. The Netherlands, meanwhile, was home to 56 buyouts worth an aggregate €6.8bn.

The current year could see an even sharper slowdown in Belgium, with fewer than five buyouts recorded so far in H1 2017, according to unquote" data. The mega-buyout involving CVC Capital Partners' acquisition of Corialis from Advent International for €1bn, however, explains why the aggregate value has already hit a healthy €1.18bn.

"A number of factors explain the disparities between both markets," explains Karsten Langer, partner at The Riverside Company. "The first is the countries' respective sizes, with the Belgian population representing around two-thirds of the Dutch [currently around 11.4 million in Belgium, and 17.1 million in the Netherlands.]

"The language barrier is another important aspect, as Belgium is split between a Dutch-speaking part and a French-speaking one, which divides the country into two smaller markets, rather than it being a single entity."

Cedric Olbrecht, partner at Belgium-based group Vendis Capital, says: "If you speak Dutch, you're not very likely to invest in the French speaking part of the country. That makes it a less interesting place for M&A companies to develop, as well as for funds, as it adds an extra layer of difficulty to their setup."

According to Olbrecht, Vendis has around five or six "serious" competitors in Belgium, while it has to contend with 12-15 in the Netherlands. Another important aspect of the local market is the relative lack of secondary transactions, Olbrecht says: "In places such as France, secondaries account for a big chunk of the market, while they are scarcer here.

"You also tend to have a lot of family offices and family holdings, with owners holding onto assets for longer and likely to sell to the same type of investor, which might also explain why you have fewer intermediaries in the region."

Changing the scene
For some players, however, it is certain aspects of the local regulatory landscape that need to evolve before activity can pick up in Belgium. "It isn't so much the lack of deals that's at stake, but more the fact that the whole environment needs to become more friendly," says Wim de Waele, CEO at B-Hive, a recently launched collaborative platform between London and Belgium aiming to boost financial technology investments in the region.

"Some constraints on the regulatory and taxation side, regarding management company structures, for instance, could be optimised," says de Waele. "With some changes to the way financial institutions can invest their money, we could free up a lot of capital."

As an example of this, the Belgian government recently introduced tax incentives for early-stage investments through the Tax Shelter scheme, whereby investors willing to support young startups (directly, via crowdfunding or via seed funds) can benefit from a reduction on their personal income tax. The government is currently looking into additional measures that could extend the incentive for growth financing, according to de Waele. "If we could obtain a similar scheme for later-stage investments, that would be very helpful." The ministry of finance could be bringing these measures to the table by the summer.

Another challenge Belgium needs to tackle is its lack of larger funds able to support local companies in later stages of growth. Speaking to unquote" last year, Jurgen Ingels, who works in close collaboration with de Waele on the B-Hive project and launched Belgium-based VC firm SmartFin Capital in 2014, said: "The challenge in Belgium is not that we don't have the engineers, the knowledge, or the appropriate market; it is really that we don't have the capital to help [tech startups] grow further. Once companies need €10-50m to evolve internationally, there aren't any Belgian funds that can help them do that, so they usually go and find the money abroad."

This impression is further confirmed by de Waele, for whom the Belgian market clearly lacks vehicles large enough to help businesses grow globally into areas such as London or the US: "What we need is a few funds in the order of magnitude of €250-300m – hopefully at least four or five of these in the long-term."

But there is momentum at present, says de Waele, with some initiatives in the works that should redress this problem. For instance, a tech-dedicated fund of a considerable size should be launched by summer, he says. 

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• Topics
• Benelux
• Investments
• Belgium
• Vendis Capital