H1 Review: Large-cap value drives Benelux buyout activity

Buyout activity remained on an even keel in the first half of 2019, with just three fewer deals than the 54 recorded in H2 2018. On the other hand, H1's aggregate value of €11.1bn resulted in a 60% increase on H2 2018, and reveals large-cap activity remains strong in the region.

In fact, when excluding the exceptional €10.1bn carve-out of AkzoNobel's speciality chemicals arm, which took place in March last year, H1 2018's aggregate value amounted to €11.7bn and therefore is comparable to this year's first half.

Five transactions valued over €500m took place in the first half, including KKR's acquisition of Exact Software, Hg's investment in TransIP Group, (which then merged with Combell Group to become Team.Blue), and Eurazeo's backing of the Dutch Ophthalmic Research Center. Commenting on wider M&A activity trends, NautaDutilh partner Willianne van Zandwijk says: "So far, overall activity has been lower than in 2018, although we have still been very busy – the merger between Amsterdam-based Takeaway.com and London-based Just Eat announced in August being a particular highlight."

With 32 mid-market buyouts totalling a value of €3.26bn in the first half, 2019's activity in the space could end up in line with 2018's 63 buyouts, which totalled €6.75bn. NautaDutilh partner Elke Janssens, based in Belgium, says that rising competition in a crowded market has had a detrimental effect on some processes. "An issue we are seeing is that GPs offer to pay high prices to obtain exclusivity in their bid letters, and when concluding the deal, these valuations can be hard to sustain and the auction is sometimes aborted," he says. Janssens adds that a number of businesses were acquired at already high multiples by private equity buyers the first time around, pushing them to seek ever more inflated valuations and increasing the risk of pricing mismatches in current auctions.

Pricing woes
Kempen manages the Kempen European Private Equity Fund, investing mostly in companies with EVs of €20-40m. Co-head Sven Smeets agrees that the biggest challenge remains discipline with pricing, given the current competitive landscape, especially for GPs relying mostly on auctions. Moreover, a number of small-cap and lower-mid-market GPs have recently held closes for funds significantly larger than their predecessors, which means these firms will need to provide larger tickets and go towards the already crowded mid-market, he says.

Marvin de Jong, a director at Kempen Private Markets, adds that the firm's market segment still offers a sufficient pipeline of good-quality assets and comparatively lower competition: "We are seeing many founders reaching the retirement age and wanting to sell their businesses and remain invested in their company as minority owners." Kempen also expects to co-invest with other GPs and recently backed Wilvo alongside the German GP Steadfast. "They sourced the deal and were keen to have a local partner. Co-investments, including cross-border ones, show GPs are interested in finding creative solutions for sourcing and producing value creation," says de Jong.

The small-cap buyout space, with 14 transactions amounting to a collective €235m value, is tracking towards a slowdown compared with the 2017-2018 period, which was exceptionally busy. Players in that space can look forward to lower levels of competition. Ewout Prins, a managing partner at Holland Capital says the firm has not seen a drastic pricing increase in its market segment compared with 2018. "On the other hand, the mid-market is seeing some high valuations, which, in turn, offers interesting exit opportunities," he says.

The fundraising front was rather quiet in the first half in the Benelux region. In the mid-market, Vendis Capital III held a first and final close on €300m, and Ergon Capital Partners' fourth fund reached a final close on its hard-cap of €580m. Lower down the value scale, highly specialised strategies were successful: Velocity Capital launched a €105m evergreen vehicle, FinTech Ventures Fund, targeting early-stage investments in financial technology companies, while Vesalius closed its Vesalius Biocapital III fund on €150m. 

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