Navigating privatisation opportunities in Belgium

In keeping with the austere spirit of post-crisis Europe, Belgian policymakers no longer require the state to majority-own national post and telecoms giants Bpost and Proximus.

A privatisation scenario for either asset could spice things up in an otherwise slumbering Belgian private equity market, home to a mere 3% of all 276 buyout transactions recorded by unquote" Europe-wide in H1 2015. Indeed, the size of these potential deals would certainly wake the market up as Bpost holds €2.12bn in assets while Proximus boasts a balance sheet of €8.5bn.

The Belgian authorities, represented by telecoms and postal services minister Alexander de Croo, justified the changes by the need for both companies to remain competitive. However, the government's silence on a possible stake sell-off has not stopped corporates from positioning themselves for an eventual purchase. For months, local media have been reporting on the courting of Proximus by Dutch telecoms company KPN, with CEO Eelco Blok defining its Belgian peer as the "logical candidate" for an alliance.

As strategic buyers set their sights on Belgium, are private equity houses well positioned to snap up public assets? The industry has certainly proved its worth in scooping up similar assets elsewhere in Europe, with highlights including the recent takeover of RBS's Luxembourg operations by French GP BlackFin Capitla Partners amid plans by the UK government to gradually exit its 79% stake in the bank. In Greece, an externally managed €50bn fund will be set up for the sale of public assets.

Stake sell-off on the menu
Elke Janssens, head of private equity at legal firm NautaDutilh, believes Belgium is a prime destination for privatisations. "Although the largest waves took place in the 1990s, a huge window of opportunity remains open," she says. She underlines infrastructure projects, public broadcasters VRT and RTBF, and transportation operators such as NMBS, De Lijn, TEC and STIB as attractive plays. Indeed, appetite seems on the rise for transportation businesses, judging by the Argos Soditic-backed €70m MBO for rail freight operator SNCB Logistics from state-owned parent SNCB in March.

However, Janssens believes the most likely privatisation candidates are Bpost and Proximus; a sale proposal for the duo could crop up soon, when parliamentary debate around the 2016 budgets kicks off, she says. "Selling off Bpost and Proximus would not have as much political impact and is therefore more realistic in the short term than bus or train operators, where privatisation remains a highly sensitive topic."

Janssens' views illustrate one of the challenges associated with state-owned companies: transitioning management and employees from a public service culture to a private-market mindset. "Successful privatisations generally feature a company that understands it is operating in a competitive market and therefore needs to change its management style. The partial liberalisation of the Belgian post, for instance, proved quite difficult," she says.

Patience wins the day
Indeed, Bpost may be in investors' sights today but it is already an old acquaintance for the private equity community. In 2005, CVC Capital Partners and Post Danmark jointly acquired a regulation-compliant 50%-minus-one-share stake. Four years later, CVC bought its investment partner out and then divested its shareholding via an IPO and a final exit in 2013, reaping a formidable €2.1bn on a €580m investment. "This triggered a lot of criticism. Success stories like these make pricing a state-owned asset a very delicate matter," Janssens says.

In spite of potential complications, privatisations could be a golden nugget for those GPs willing to take on longer holding periods. Says Janssens: "The complexity of a state-owned company requires specific skills, and not every private equity house will be a good fit. It is important to manage expectations, as gradual changes are required in order to avoid social unrest and political pressure." So long as the long-term goals of the company are met, Janssens says, private equity's unique expertise can be game-changing for a state company's transition into the private market.

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