Netherlands: Out of sight for foreign GPs?

The Dutch private equity market is far from being among the big players like the UK and Germany, yet the country's business-friendly environment has proven to be fruitful for its industry. While 2009 felt a significant drag on the economy and the private equity industry, numbers have improved since then. Although the overall number of buyout, expansion and early-stage deals has decreased since the pre-crisis era, values have stabilised. However, these trends only hold true among domestic Dutch investors.

Despite the good news in terms of valuations and overall activity among Dutch GPs, there is a new problem looming. Activity levels among foreign private equity players decreased significantly from close to 54% of investments in 2010 to around a third in 2011. It seems like domestic private equity houses are more than willing to fill the gap, but it also shows that there is something keeping international investors away from the Dutch market. unquote" data shows that primary investments in 2010 amounted to close to €3.3bn, while this number fell to €1.9bn in 2011, primarily as a result of foreign players leaving the market.

The secondary market in the Benelux region was dominated by foreign investors in 2010; the largest deal being the €3bn secondary buyout of Univar by the British GP Clayton Dubilier & Rice. In 2011 on the other hand, the trend reversed and transaction value shrank. Still, the largest secondary of the year, the secondary buyout of Taminco, was completed by a foreign player, UK-based Apollo Invest.

Many international LPs invested in European private equity funds will face stricter requirements when new regulation comes into force, which stresses the importance of investor confidence and good returns in the domestic market. A good growth outlook could help keep these investors from looking for opportunities elsewhere. However, the current political situation of the Netherlands is posing a new challenge that may have an impact on market sentiment and affect the Netherlands' ability to attract foreign investors.

Political turmoil may affect investor sentiment
In late April, the Dutch government collapsed over budget cuts. The incumbent administration had been a minority government formed by the conservative-liberal VVD (Volkspartij voor Vrijheid en Democratie) and centre CDA (Christen-Democratisch Appel), supported by the right-wing PVV (Partij voor de Vrijheid). Budget cuts worth around €15bn, necessary to meet the country's deficit targets, were rejected by the PVV, which lead to the resignation of prime minister Mark Rutte and the collapse of the government. After the EU imposed an ultimatum to pass a budget, the GreenLeft party came forward, backing the measures, including a 2% increase in VAT, higher taxes on alcohol, tobacco, soft drinks and gas, fewer tax deductions and cuts in the healthcare sector.

New elections are expected to take place in September 2012. This will be the fifth time the country has held a general election since 2002. If the PVV was to gain a majority in the upcoming elections, the Dutch stand on European politics and involvement in the EU is likely to change dramatically. Political turmoil and the rise of extremist parties like the PVV are detrimental to the positive market sentiment and risk scaring away foreign investors for good.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Send to  

• Topics
• Benelux
• Performance
• NVP
• Netherlands