Expanding horizons

Top of the class

The ^Q1 barometer has the Benelux region occupying five of the top 10 expansion deals in Europe. Belgium was particularly remarkable by occupying the first, second and fourth places in terms of deal value. The Netherlands also made waves, with Dutch investor Waterland Private Equity being the most active in completing two of the 10 transactions - Enfinity and BioMCN. Luxembourg also makes its mark on the ranking, with the EU^R20.2m investment in DS Care.

The Dutch Private Equity & Venture Capital Association (NVP) for their part have supported the positive outlook for the Dutch region by giving an optimistic outlook for 2009 in their annual review. Adding to the reported 66% increase in start-up capital to EU^R228m, the review stated that while investment in start-ups is said to remain stable, the volume of expansion deals is likely to increase. Andre Olijslager, NVP chairman states that "2008 saw an obvious decline in investments in (Dutch) private equity. At the lower end of the market however, the venture and expansion levels are unaffected, and 2009 will see investors remain active in these areas."

When it comes to volume and value, buyouts have historically always surpassed expansion deals. However the trend has been dramatically reversed in ^Q1. The lack of available debt has ravaged the LBO market, which has played somewhat in favour of the expansion market. This last quarter has seen significant growth in the Benelux region, increasing in volume from three deals in ^Q4 2008 to 13 in ^Q1 2009; the highest number of deals since ^Q1 2006.

At the European level, while the Benelux region trails in third place in terms of the number of completed deals, it ranks top in terms of value; superseding the combined value of the UK, French, DACH and Nordic markets. Even if we exclude the EU^R373m De Post/La Poste deal, which could be seen as something of a "freak" transaction, the value of Benelux' expansion transactions is still nearly twice that of its nearest rival, France.

External investment for external growth

The resilient Benelux market has drawn the attention of investors in neighbouring countries, and it is not just the usual mid-/higher end of market deals like the CVC-led De Post/La Poste transaction in the spotlight. A recent example is France's UFG Private Equity backing Belgian software and consulting company BSB International - a deal which just last year would have likely been too small to blip on many non-indigenous investors' radars.

"The principal opportunity for foreign investors in the expansion market is to support these companies and help them fulfil their potential and expand geographically," says Patrick Lissague, director general of UFG Private Equity. On the technicalities of investing in the Benelux market as an outsider, he adds that "there are strong cultural elements to take into context when investing in a non-home country. For example, the owner is traditionally very often active and there is a lot of investment from private money as well as banks such as Fortis and ING. Social differences can make acquisitions very complex, yet they must be respected."

2009 and beyond

Although most activity for the rest of this year will lie in venture and expansion, Olijslager also expects a number of unprecedented initiatives to develop as Dutch private equity adapts. "We didn't see any big buyouts in 2008 and we expect this to continue into 2009," emphasises Olijslager. A number of refinancing deals, such as that of CVC- and KKR-backed waste management firm AVR, are likely to surface at the high end of the market. "Investors have been looking into purchasing heavily discounted loans in their own portfolio companies. 'Walk-ins', whereby a private equity company purchases a loan for an unrelated company, muscling in on the decision-making process, are another type of deal that may start to appear," adds Olijslager.

GPs keen to support their portfolio companies, adding value via external acquisitions. Given these deals are mostly done with equity or incumbent target debt, they should manage to go through without excessive difficulties. Although price expectations are not yet fully aligned, price tags have nonetheless declined, increasing the number of opportunities.

The next point of concern would be LPs. Luckily thus far, "there has been little change in their activity, and they have been meeting all their obligations. This means private equity investors still have enough capital to support their companies through (at least part of) these times," notes Olijslager. But while the Benelux growth capital market is in comparatively rude health, it remains to be seen whether ^Q1 statistics will set a trend for the year.

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