What does the future hold?

Erwin Simons, Partner, DLA Piper Brussels

"The international financial crisis, and the general economic slowdown resulting from it, will inevitably affect the Belgian private equity market for 2009. The projections for the Belgian economy for 2009, as published by the National Bank of Belgium on 8 December last year, indicate that activity in Belgium is predicted to decline in Q1 2009, with a very modest recovery in the ensuing quarters. Belgium's real GDP growth is projected to fall by 0.2% in 2009.

As elsewhere in Europe, the credit crunch has made credit in Belgium more expensive and less accessible. Buyout transactions undertaken by private equity funds traditionally are heavily leveraged and dependent on cheap and easy accessible credit. Therefore, it would be logical to predict a significant decline in the market. Nevertheless, the expectations for the market are not as negative as one would expect.

Firstly, the Belgian private equity market is mainly characterised by small- and medium-sized deals, for which the leverage aspect is less decisive than for mega deals. Private equity houses are expected to have enough funds of their own that there should be sufficient credit available to continue financing the numerous small- and medium-sized deals that the Belgian buyout market has to offer. Secondly, buyouts are only one part of the private equity market. The importance of the venture capital segment will most likely increase now that credit is more expensive and less accessible. Enterprises will have to look for alternative solutions to finance their growth and private equity funds look eager to invest, as recently illustrated by the EUR500m raised by the XL fund incorporated by GIMV and the Flemish government. Thirdly, the volatile share markets and the difficult financial and economic climate will create numerous buying opportunities, turning the landscape into a real buyer's market in which leading private equity firms can continue to outperform traditional investment managers and even strengthen their position."

Victor de Vlaam, Partner, Lovells Amsterdam

"Whilst 2008 can no doubt be described as cautious and pessimistic for many sponsors in the Netherlands, the outlook for the year to come seems to be mixed.

We are seeing that in the mid-market deals are still being done if they are in the right sector and appropriately structured. Recent examples of Dutch private equity deals include the December 2008 sale by Cebeco of its poultry processor, Plukon Royale Group, to Gilde Buy Out Partners, and the sale by Stage Entertainment of its ticketing business, Stage Ticketing, to Parcom in Q3 of 2008. In these transactions, one can see that selling shareholders directly or indirectly consider remaining financially involved in the divested entities. In particular, in transaction structures where selling shareholders continue to remain involved in the target, this may add an additional layer of complexity to the negotiation process in view of the more partnership-driven structure of the transactions. With debt financing still rather scarce, the slices of equity to be put in by the sponsors continue to increase significantly, with Gilde for example, expecting to finance more than half of the consideration with equity.

In terms of deal size, activity is mostly expected at the small- to mid-market level, where the financing of deals is typically backed by clubs of banks, as these deals by their nature have little need for the syndications market. As to specific sectors, significant activity is expected in the infrastructure arena as well as the environmental and waste sectors. An example is Dutch Essent Milieu, which has been put up for sale. In terms of new fundraising, we see an increasing appetite for restructuring-focused funds seeking to invest in financially-troubled companies."

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