Benelux industrials booming and primed for internationalisation

Aggregate deal value in the industrial sector far exceeded that in the consumer space in the Benelux region during the first half of the year, according to Unquote Data.

Even setting aside the €10.1bn carve-out of AkzoNobel Specialty Chemicals by The Carlyle Group and the Government of Singapore Investment Corporation, industrials accounted for 60% of total deal value for H1 2018, compared with the 38% accounted for by consumer deals. The two sectors have been neck-and-neck in recent years in terms of aggregate deal value: each accounted for around 42% of the region's total deal value in 2017, while in 2016 the consumer sector accounted for 39% and industrials accounted for 36%.

Certainly, 2018 has proven a difficult year across Europe for the consumer sector, which is exemplified by the difficulty Lion Capital has faced in selling Dutch department store chain Hema. Nonetheless, in absolute terms, industrial deals – including those in the oil and gas, basic materials and utilities segments – are clearly attracting growing sums of private equity capital. In the mid-cap space, the €2bn aggregate value of industrial deals has already surpassed the €1.8bn total for 2017 and could surpass both 2016's post-crisis peak of €2.9bn and 2007's all-time record of €4bn in the price range.

In terms of deals with enterprise values of more than €500m – again setting aside the AkzoNoble transaction – four industrial deals took place in H1, of which three were SBOs and one was a carve-out. Large-caps, which were all led by international or pan-European GPs, totalled an aggregate value of around €4.8bn. The amount already matches 2017's industrials large-cap figure of €4.3bn.

When asked what differentiates the industrial sector in Benelux from other European geographies, Bas Glas, a partner at Gilde Equity Management Benelux (GEMB), says: "The region's industrial businesses generally have prime R&D divisions. In terms of small-cap businesses, this means that many companies develop high-quality niche products."

New frontiers
Some recent deals in the €100-500m range show the extent to which mid-cap Benelux industrials aspire to expand internationally.

GEMB's May acquisition of ConTeyor, a reusable packaging company, is intended to accelerate growth in North America, where it currently serves Tesla and BMW. Similarly, IGM Resins, a Dutch manufacturer of speciality coating chemicals bought by French GP Astorg in May, had already signalled its international expansion plans by bolting on Chinese UV curing specialist IHT in 2014 and carving out the photoinitiator operations of Italian corporate Lamberti in 2015. Finally, Gilde Buyout Partners acquired Netherlands-based Elcee, a supplier of engineered industrial parts, in June. Under the ownership of investment company Transequity Network, Elcee developed into a pan-European industrial supplier, acquiring businesses in Belgium, Germany, the Nordic region and Poland.

In addition to pursuing international expansion strategies, Benelux industrial companies are also increasingly attracting the attention of international players. Since the start of 2018 in the same €100-500m EV price range, Canadian asset manager Brookfield Asset Management has acquired a 75% stake in transit packaging manufacturer Schoeller Allibert; Equistone Partners Europe has acquired a majority stake in Boal Group, a manufacturer of greenhouse roofs and sidewall systems; and EQT Partners has invested in Dunlop Protective Footwear, a producer of business-to-business protective wellington boots. In H2 of 2017, EQT Partners acquired water and air decontamination business Desotec,  IK Investment Partners acquired Optimum Group and Alpha Private Equity wholly acquired insulation business Ipcom.

EQT's Arjan Snijders, who focuses on mid-cap investments in the region, explains that GPs with a global platform are ideally positioned to foster the international growth of their portfolio companies since they are able to leverage their established network and local teams abroad.

GEMB's Glas confirms that international investors are increasingly interested in the market, that family offices are bidding for assets more regularly than has previously been the case, and that a crowded market is keeping prices up. However, he says: "Everyone can bid high, but what really makes the difference today is firstly to have an established network and know the market well, secondly the quality of the value-addition plan set out by the GP for the business, and finally the kind of relationship GPs are able to build with management."

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