Benelux funds specialise to compete with strategic buyers

Oscar Geen
19 December 2017

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Benelux-based PE firms raised more money in 2017 than 2016 but, aside from a handful of large-cap deals, deployed less capital across fewer transactions than in the previous year. Oscar Geen reports

Despite the buoyant fundraising environment, intense competition has led to private equity firms completing fewer deals in the Benelux mid-market. A handful of large-cap deals is constituting the majority of deal value in the region, but small- and mid-cap players are having to specialise to survive.

In terms of capital raised, 2017 was a record year for fundraising in the Benelux region, although there were fewer final closes than in 2016. By the end of November, nine funds had held final closes worth €6.88bn, whereas 17 vehicles held final closes totalling €3.04bn the previous year.

Managing partner at placement agent Acanthus Advisors, Armando D'Amico, says there are even more in the pipeline: "There are quite a few funds in the market at the moment. They might not close before year-end because when you get to December investors only send to the board commitments that are really urgent, so we might see a few closes in Q1." Both Main Capital and Egeria Private Equity are understood to be close to holding final closes for vehicles with a combined value of more than €1bn.

There's been a lot of activity but a lot of the deals have gone to industrial players, which are willing to pay strategic prices" – Hidde van Kerckhoven, Gimv

However, a large amount of the capital hard-circled in 2017 came from just two closings, Alpinvest Partners' €3bn secondaries fund and Waterland Private Equity's seventh buyout fund, a €2bn vehicle. D'Amico no longer counts Waterland as a mid-market player: "Another thing that's affected the stats is that Waterland has raised a €2bn fund and expanded across Europe, so it's no longer classified in the Benelux mid-market in the Acanthus statistics, as the cut-off is €1bn."

By this metric, D'Amico says mid-market fundraising is having a worse year than 2016, but points out that this is to be expected in a smaller market. "In markets such as the UK, they are so huge that they are less cyclical. Benelux is a smaller market, so if you have a lot of fundraising one year, the next will tend to be quiet."

This would suggest dealflow should increase, as funds switch their attention to deploying capital, but this has not been the case so far. Indeed, in the first 11 months of 2017, there were 64 buyouts in the Benelux market, according to unquote" data, a marginal decrease on the 66 seen in the same period in 2016 and on a par with the number seen from January to November in 2015.

Gimv associate, Hidde van Kerckhoven says there are plenty of deals around but it's increasingly difficult for traditional private equity players to win them: "I don't think there have been fewer deals this year. There's been a lot of activity but a lot of the deals have gone to industrial players, which are willing to pay strategic prices, or family offices that structure the investment differently than a private equity house."

Long-term concerns
It is the success of the asset class that has attracted the new players and van Kerckhoven understands the allure, but is concerned about the longer term effects of such high multiples. "We see a lot of family offices, high-net-worth individuals and executives of companies who are looking for alternative investments," van Kerckhoven says. "Private equity has shown very attractive returns over the past few years, but if we, as professionals of many years, are regularly being outbid by up to 20%, it raises questions about sustainability."

One solution is to specialise in a sector to be competitive on aspects other than price. Acanthus's D'Amico says there is a growing minority of LPs with appetite for this. "The US market is where special situations and sector-specific vehicles were born, and now they are finally coming to Europe as well," he says. "In terms of LPs that want to back them, it's an 80-20 split. Many will remain in more conservative and established funds, but the dynamic 20% have now filled their portfolios with a number of solid funds and want to look for specialist vehicles."

Gimv has divided its operations by sector for a while and van Kerckhoven says this is a growing trend: "Industry specialisations have been around for some time already and private equity funds are noticing that if they want to make a difference they have to specialise in a specific industry. To be successful as a private equity investor now, you have to improve companies operationally."