Buyouts soar but Dutch PE remains under scrutiny

On the good news front, NVP's latest report shows that most deal brackets of the Dutch buyout space saw strong activity in the last year: nearly €5bn in equity was invested in 94 Dutch companies, against 2017's €3bn deployed across 103 businesses, according to the research. Last year's aggregate investment, the highest since 2007, was reached first and foremost thanks to the upper-mid-market (which NVP denotes as equity tickets of €150-300m) and the large-cap space (investments exceeding €300m), which both performed strongly compared with 2017. Dealflow across the two segments stretched to €2.73bn deployed across seven deals, against 2017's €1.05bn of total capital invested across just two deals.

But activity was equally strong last year in the core mid-market (investments of between €50-150m) . A total of €1.24bn was invested across 12 deals, against 2017's much more modest €436m invested in five businesses.

Crucially for a section of the economy that can still struggle to attract sufficient investment, the small-cap space (equity tickets of less than €15m) also continued to perform strongly in 2018: €329m was invested in 59 businesses, up from 2017's €251m across 51 companies.

Felix Zwart, responsible for research, tax and regulatory affairs at NVP, is not surprised by GPs' continued interest in the small-cap segment: "It is easier to increase operational performance at an SME, as its board is typically very small, and busy with the day-to-day survival of a business, rather than its longer-term strategy. A CFO figure is often missing, for instance. Plus, the mid-market has become really crowded, so PE investors target this space to invest in complex situations and at lower multiples."

Zwart also underlines that NVP is noticing increasing levels of professionalism from all corners of the market, and that owners and managers of small companies have taken notice of PE's appetite. "Entrepreneurs are becoming familiar with the investment processes of private equity, and the different kinds of investors that can back them," he says. "For instance, they know what prices to ask and what are the most suited advisers to consult."

In the spotlight
Although the private equity industry flexed its investment muscle last year and is increasingly on the radar of business owners, this has not correlated with a wider improvement of the public perception of the asset class. Since several large PE-backed Dutch businesses went under in 2014 and 2015, the industry has been scrutinised by politicians and the general public alike.

This has come to the fore again in recent weeks, with questions arising around a merger in the ever-sensitive childcare space. In April, Navitas Capital's Partou and Onex Partners' KidsFoundation, both Dutch childcare companies, announced plans to merge, with PE firms Onex and Waterland becoming the main shareholders in the combined business. The new organisation will provide daily care for 60,000 children, employing 8,000 people working at around 650 locations in the Netherlands. "The announced merger has caused some unrest, as childcare is considered a necessary service with an important social function, and it was questioned whether it was ok for PE investors to be in charge of such a huge company in this sector," says Zwart.

Zwart is keen to point out that the debate goes beyond PE's ownership model, as the majority of childcare businesses in the Netherlands (70%) are currently privately owned: "The PE-owned market share is only 10%. Therefore, we think this debate should be more about for-profit childcare in general, instead of private equity ownership specifically."

Nonetheless, Zwart welcomes a public debate, and thinks that sharing knowledge around the value that PE has brought and continues to bring to Dutch companies will help improve the industry's reputation.

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• Topics
• Benelux
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• Netherlands
• NVP