Unleashing Dutch dynamism

Unlike the Dutch landscape, private equity activity in the Netherlands has been anything but flat. According to the European Venture Capital Association (EVCA), in 2004 the level of investment in Dutch private equity and venture capital rose significantly. This is confirmed by Tjarda Molenaar, director of the Netherlands National Association (NVP), who says: “In 2004, the Dutch private equity market was worth a total of €1.7bn compared with €1.1bn in 2003.”
There has also been an increase in capital available for private equity investment. Funds raised by Dutch private equity companies rose to e3.2bn in 2004, an increase of 56% over 2003 levels, according to EVCA figures.
Ilona Brom, a director at Wilshire Private Markets in Amsterdam, part of California-based Wilshire Associates, feels that the Dutch market, although mature, is still growing and is stimulated by more groups coming into the market. Andrew Musters, a partner at Robeco Group, which runs Robeco Private Equity, a listed fund of funds, has also noticed a renewal of opportunities in the Dutch market.
He says: “The market here has always been active but continues to grow. At a company level, there is an increasing number of opportunities for Dutch and international private equity firms focusing on the Netherlands. In fact, after the UK, Germany and France, the Netherlands is number four in terms of total private equity investment”.
Wytse Bouma, at Parcom Ventures, has noticed that institutional investors are currently favouring the more mature type of transaction. In fact, investors in Dutch private equity appear to favour buyouts. EVCA figures reveal that €3bn of new funds raised in 2004 are intended for investment in buyouts, which accounted for 75% of the total amount invested in 2004.
Other stages of the market have not fared so well, however. Last year there was a severe decline in expansion funding and just 2% (€39m) of the total investments made in Dutch private equity last year were committed to seed and start-up capital. At the moment, many funds prefer to leave the market altogether or use the capital to bolster existing portfolios rather than invest in this part of the market.
Dutch private equity deals are also getting larger. In 2004, €1.2bn of buyout funds were invested in 132 companies, compared with 88 companies receiving investments of €612m from buyout activity in 2003. Molenaar says: “Auctions are becoming more commonplace. We are seeing more opportunities coming through advisers, especially in large buyouts and mid-size buyouts.” This auction process has put an upward pressure on prices. She adds: “In the Netherlands, we have good companies with good plans and management teams but prices have gone up noticeably in the past year.”
Robert Wilhelm, managing partner of NeSBIC Group, feels that the quality of dealflow in the Netherlands is high and deals are happening at good valuations. He says: “Firms in the Netherlands benefit from good management teams and have good products at their disposal, as well as realistic expectations and a stable client base.”
Bouma has also noticed a surge of interest among investors. He says: “Strategic parties have licked their wounds and repaired their balance sheets and want to grow again. They are now coming back into the market, which is good news for private equity players.”
Boudewijn Molenaar, a partner at Gilde Investment Management agrees and says that the volume and quality of deal flow is increasing every year. He adds: “The mid-market is already quite well-established in the Netherlands and, with the exception of 2002, has seen fairly strong performance compared to other countries in Europe.”
Despite the troubled economic climate of the past few years which has sometimes delayed deal completions and made vendors reluctant to sell businesses at the prices offered on the market, the number of buyouts that have completed in the Dutch market has remained relatively consistent.
According to Initiative Europe’s European Buyout Review 2004 (EBR), Dutch deal volumes dropped to 20 in 2004, from 23 the previous year. Although 2003 recorded growth in comparison with 2002, the number of buyouts that have completed in the Dutch market has remained relatively consistent since volumes fell from 34 in 2000 to 19 the following year (this figure does not include any e1bn-plus deals, although six deals in the e250m-e1bn range were completed).
Investors in the Dutch buyout market have occasionally completed very large deals and this has had a distorting affect on annual value figures. In 1999, the Netherlands recorded an aggregate deal value of e2.3bn and then surpassed that figure in 2001, when the market rose in value to e2.7bn.
Analysis conducted by Initiative Europe reveals that the absence of any e1bn-plus deals and the completion of only one e250m-500m buyout in 2002 means that the total value of the market reached only e778.3m – a fraction of the 2001 figure, despite the completion of the same number of deals.
EBR figures also show that in 2003 the total value of the Dutch market soared to a record level of e3.7bn.
But the amount of capital deployed in the market during 2004 was even more impressive, with e5.6bn invested in Dutch buyouts. The massive e2.1bn buyout of VNU World Directories by Cinven and Apax Partners and the acquisition of Vendex, at a price estimated to be well in excess of e1bn, by a syndicate made up of Change Capital Partners, Alpinvest, Kohlberg Kravis Roberts, Permira and Cinven, were largely accountable for bumping up this figure.
According to the NVP, the growth of the Dutch private equity market has been driven by investor interest in buyouts and late-stage financing, with only e37m going to seed and early-stage financing. NVP’s Molenaar explains: “Venture capital players are finding it difficult to attract new investors. Activity in this segment of the market declined further in 2004 because of disappointing results in recent years.” In fact, EVCA figures estimate that only 5% of new funds raised in 2004 were intended for investment in venture capital. Brom agrees, she says: “Many firms have not recovered from the fallout of the technology bubble, and most institutional investors still favour buyouts over venture capital.”
In the past two to three years, institutional investors have tended to look at later-stage, mid-market and buyout deals.
Wilhelm at NeSBIC Groep, which started its fund management activities in 1969 and has invested in more than 200 companies since then, says: “Until recently, investors have tended to shy away from investing in venture and growth capital. Many venture capital funds have exited the market and there are few players left in this segment of the market. But the most sophisticated investors have noticed the recovery in their portfolios and the fact that the market has stabilised. They have realised that they stand to make very good returns in this segment of the market. Currently, US technology companies are coming to Europe and acquiring technology companies.”
The subsequent underfunding of technology companies in the Netherlands has created opportunities for experienced private equity fund managers. Wilhelm says: “The Benelux is a smaller market than France, UK, Spain or Germany, but it has good technology companies.”
Earlier this year, NeSBIC CTe Fund II, an independent leading Dutch–based technology venture fund, sold its stake in the technology-based energy service provider Oxxio to UK buyer Centrica, despite the advanced stage of its preparations to float the company on the Euronext Amsterdam stock exchange.
Through this exit, NeSBIC achieved a multiple on investment of 17x its equity investment with an IRR of 69% and a profit on the investment of over e40m. NeSBIC is currently raising a new technology growth fund focused on the Benelux.
Dutch deal flow is healthy and investment opportunities come from a wide range of sources. Robeco’s Musters claims that, at the moment, deals tend to arise either because the shareholders are baby-boomers, who want to monetise their hard work, or families that are having succession issues. According to EBR, Dutch corporates have also been under pressure to divest subsidiaries as economic conditions have worsened in the past five years. As a result, corporate disposals have been the dominant source of buyouts in the Netherlands since 2001.
Musters comments: “There is a continued trend for restructuring and corporate divestiture, which is quite positive for the private equity industry as a whole.” In fact, in 2004, corporate restructuring produced the largest proportion of buyout opportunities in the Netherlands. EBR data shows that 10 out of the 20 deals recorded last year were a direct result of a corporate divestment. Of the three 500m-plus Dutch buyouts that completed during the year, two (VNU World Directories and PCM Uitgevers) were acquisitions from local parents.
Despite being a characteristic feature of the market year-on-year, no divestments by foreign corporates were recorded in the Netherlands last year. According to EBR, the volume of buyouts resulting from divestments by foreign parents has fluctuated over the past few years, but the relatively large number of foreign corporates present in the country has had a positive effect on dealflow. Yet the number of deals from this source does seem to be in decline: volumes fell from six in 2002 to four in 2003 and to none in 2004.
NVP’s Molenaar has also noticed an increase in the number of divestments made by big corporations. He says: “We have seen a high number of carve outs recently. Surprisingly, there has not been an increase in the number of divestments made by family businesses, although the number remains more or less constant.”
In the past, divestments by family businesses were an important source of dealflow in the Netherlands. For example, in 1999, industrial bakery group Bakkersland was created following the merger of nine family-owned bakeries, led by Parcom Ventures and Hayhill Capital Partners. Since 1999, the group has been further strengthened with capital investments and, earlier this year, Parcom Ventures and Hayhill Capital Partners, together with the senior management team, acquired all the remaining shares from the founding families.
By contrast, in 2004 only three buyouts from families or private vendors were recorded, compared with five the previous year and just one in 2002. EBR data shows that, overall, the Dutch private equity industry has seen a marked decline in the number of deals arising from divestments made by smaller, private vendors. In 2000, 15 such deals were recorded, accounting for over 40% of the deals completed in that year. Since then, the highest number of deals completed in any one year was five.
The concept of private equity is familiar to small Dutch businesses and this decline is therefore likely to be a reflection of the global economic uncertainty that has forced many private vendors to delay a sale until they can command an acceptable price for their business and not signs of any other underlying trend.
One public-to-private deal has taken place in the Dutch private equity market every year since 2000. In 2004, the deal in question was the €152m sale of Delft Instruments to Alpinvest and Advent International.
EBR analysis reveals that the last privatisation completed in the Netherlands was in 2001 when NS, the Dutch rail operator, disposed of its infrastructure solutions subsidiary Holland Railconsult to NPM Capital for e45.4m. (The Netherlands, like the UK, has already seen the majority of its state-run industries privatised). However, the government is said to be considering a further wave of privatisation, which could see fresh dealflow generated over the next few years if parts of the rail, health and education sectors are sold off.
EVCA data shows that, on the whole, investments in 2004 were dominated by consumer-related sectors (which accounted for 29% of deals completed), computer-related (22%) and medical/health-related (13%).

Bouma adds: “In general, private equity tends to be quite opportunistic, but some deals related to telecoms seem to be popular. Many private equity players are also looking to invest in the energy sector but the opportunities are limited, although that may change if regulatory changes are made.”
An improvement has occurred in the exit climate in the Netherlands with exits increasing to e1bn compared with e930m in 2003. The second-largest deal of the year was the e1bn plus buyout of Vendex, which was also an exit for CVC Capital Partners. Despite a drop in the total number of divestments, which fell from 451 to 343, exits rose in value by 8% in 2004.
Some of the more prominent forms of divestment included the repayment of preference shares or loans and trade sales, which accounted for 18% and 15% of total divestments respectively. According to EVCA, the rise in repayments of principal loans is significant as it shows that portfolio companies have realised strong operational results Molenaar says: “We have seen a number of secondary and even tertiary deals, but the Dutch market is not as focused on secondaries as the French market.”
During the recession, secondary sales have increased in all mature European markets as private equity players struggle to establish exit records before beginning another fundraising cycle.
The Netherlands is no exception and the number of secondaries taking place in the country has grown as more and more international players are attracted to the market. In 2002, the Netherlands recorded six buyouts from institutional investors, one of which was the e1bn-plus Vendex deal.
Five other exits were achieved in the secondary market during the year, with NPM Capital, Bridgepoint, Halder Holdings Netherlands, NPM Capital, CVC Capital partners and Gilde all realising their investments in Dutch companies.
All exit options are viable for Dutch general partners (GPs) at the moment, including the stock exchange. Molenaar feels that exit opportunities are becoming more varied. She says: “Both secondaries and recapitalisations are popular as are management buybacks and trade sales; we regard this as a healthy development.”
Despite the difficult economic climate, trade buyers have also remained in the market. (ABN AMRO Corporate Investments achieved an exit from Starsweets via this route). The public equity market has had little significance as an exit channel in the past few years but this looks set to change according to Tjarda Molenaar
But not everyone will benefit from renewed confidence in the Dutch stock exchange, Wilhelm explains: “The window of opportunity for IPOs is not yet here for Dutch technology companies. With the exception of Tom Tom, which was floated, (a good example of a high-quality technology company that, unfortunately, did not have any private equity backing), most exits are carried out via trade sales although the right company can also make a financial exit.”
He adds: “We don’t see a massive number of new companies but those that are already in the market have survived the storm and are looking for expansion capital to take the firm to the next stage.”
Another sign of the maturity of the Dutch private equity market is the co-existence of both domestic and foreign private equity houses. In the past few years, local private equity groups have accounted for a large proportion of Dutch buyout activity but foreign investors also played a significant role in the Dutch buyout market in 2004. According to research by Initiative Europe, the buyout arena has continued to be dominated by a handful of local players, including ABN AMRO Capital, NIB Capital, Gilde, NPM and Parcom Ventures.
Many of these domestic groups have devoted an increasing amount of resources to establishing themselves as international players and the more mature private equity houses have employed their investment strategy in order to be able to capitalise on deal opportunities both at home and abroad.

According to EVCA, 73% of investments made by Dutch funds went into the domestic market, with 19% allocated to the rest of Europe and 8% to non-European countries.
A number of investors based in the Netherlands completed deals in the region during 2004, including ABN Amro Capital, Alpinvest, Rabo Private Equity, Bencis Capital Partners (established through a spin-out of NeSBIC Groep, a Fortis subsidiary), Egeria, Antea, NeSBIC Buyout Fund, Greenfield Capital Partners and Waterland Private Equity.
But non-Dutch private equity houses also dominated the top end of the market in 2004. In fact, the largest deal of the year, the e2.075bn buyout of VNU World Directories, was completed by Cinven and Apax Partners. The second largest transaction of 2004, the e1bn plus Vendex buyout, was the product of a syndicate formed by Dutch group Alpinvest and UK-based Change Capital Partners and US group Kohlberg Kravis Roberts. Meanwhile, the third-largest investment of the year came when Apax Partners acquired PCM Utigevers.
Other foreign groups such as UK-based investors Candover, PPm Ventures and Advent International - which made two investments - were active in the market. German group BHF Private Equity and US investors Ripplewood Holdings LLC and Berkshire Partners were also successful in winning Dutch deals during 2004.
Two Dutch private equity houses announced fund closures in 2004. Bencis Capital Partners announced the first and final close of its Bencis Buyout Fund II e50m, which was oversubscribed, while Egeria Private Equity Fund II held a first close at e250m on its way to a e450m target. According to Molenaar, smaller funds tend to be oversubscribed but players are concerned about flooding the market with capital and are wary of raising very large funds.
From an investor’s perspective, when it comes to deciding between using a domestic or a foreign private equity houses, Brom feels that domestic and international GPs bring different things to the table. She explains: “The international firms have a pan-European or global network, which is sometimes useful for bringing the company to the next stage of its development. Meanwhile, domestic players have a special insight into the Dutch market, thanks to their strong local knowledge and network of contacts.”
In addition to a healthy, high-volume and high-quality dealflow from a wide range of sources, private equity investors in the Netherlands benefit from sound legal and fiscal infrastructures. According to EVCA, the legal and fiscal environment in the Netherlands has remained favourable but many elements of the Dutch tax regime, such as the participation exemption facility, have been copied by other jurisdictions.
Molenaar adds: “We are trying to obtain a private equity tax regime that is comparable to the regimes recently introduced in Belgium and Luxembourg. At the moment, there is too much uncertainty for foreign investors in the Netherlands regarding how much tax they should pay.”
Wilhelm agrees: “Market risk is minimal in the Netherlands and there are not many risks for foreign investors. But there is no doubt that Luxembourg and Ireland have taken the favourable elements of our tax structures and gained positive momentum in gaining institutional money.”
The government has also begun discussions regarding the modification of the Dutch tax system (which should lead to lower corporate tax rates and further relaxation of the participation exemption facility), while Dutch capital tax is to be abolished from the first of January next year. In addition, the Government is currently working on a project to simplify corporate law and the NVP is making a few suggestions on behalf of the industry.
Molenaar comments: “For example, the introduction of shares without votes would enable the investor to benefit in terms of earnings without giving him a say in what goes on in the company. This would considerably simplify our structures.” She continues: “At the moment, unquoted companies are often subject to the same rules regarding what management boards can and cannot do as quoted companies. But unquoted companies are very different to quoted companies and we hope to see these rules simplified.”
She remarks: “We have an open and not very complex system, which is very positive for structuring private equity vehicles. Our banking system is good and banks are generally interested in investing in private equity-led deals.” In fact, according to EBR, local banks were the main providers of senior debt in Dutch private equity deals in 2004 and three Dutch banks accounted for 16 deals between them.
ABN AMRO bank arranged the debt facility in eight buyouts during the year, while Rabobank and ING Barings both supplied the debt in four deals. However, the largest transaction of the year involved Goldman Sachs, CSFB, Bank of America and JP Morgan, who supplied the e1.5bn of debt in the VNU World Directories deal.
ABN AMRO bank was involved in the second and third-largest deals of the year and supplied the debt alongside Citigroup SSSB in the Vendex buyout and alongside Barclays Capital in the PCM Uitgevers deal. According to EBR, the use of mezzanine in two 2004 deals (JP Morgan underwrote a e100m strip in the VNU World Directories deal, while Hutton Collins supplied a tranche of subordinated debt in the buyout of Radio 538) is evidence of the sophistication of the Dutch market.
Robeco’s Musters says: “In general, Dutch companies are business-orientated and are quite open to private equity investment. The Dutch market benefits from good management teams and well-developed legal and fiscal frameworks. Compared to other European markets, the Dutch private equity market is a good place to be as the funds here are in line with investors’ objective of running an open, transparent business. There are no big issues and we have a good track record.”
Like other European institutions, many Dutch institutions would rather commit to funds-of-funds than invest directly. This gives funds-of-funds such as Robeco a competitive advantage. Musters says: “Most of our client base is made up of institutions, the majority of which are Dutch pension funds. On the whole, Dutch institutions tend to be very sophisticated and have been at the forefront of private equity investing in Europe.”
When it comes to its investment process, Robeco has made little modification to its historical allocation to the asset class. Musters explains: “We invest 50% of our assets in the US, 40% in Europe, and allocate 10% to emerging markets. This said, we are not paid to be nationalistic and don’t overweight the Dutch market just because we are based in the Netherlands. At the moment, we consider that buyouts have the best risk-return profile and we are underweight in venture capital and large buyouts.” The fund-of-funds invests in approximately 20-25 private equity funds through which it has exposure to around 500 unquoted companies in different regions, sectors and investment stages.
The Dutch private equity market is one of the longest established and most mature in Europe. The open business culture in the Netherlands together with a dynamic M&A environment, a community of well-funded private equity houses and an awareness among entrepreneurs of how private equity can help small businesses, have combined to produce a significant and consistent number of private equity-backed buyouts for over a decade. Musters says: “The involvement of private equity has been favourable for the economy and has enhanced company performance.”
In addition, the large quantity of sizeable corporate groups that are based in the country have, on many occasions, given rise to deals of very substantial value. Brom adds: “This is a good market for private equity investment in terms of the structures available, the flexibility of the economy and the number of cost-conscious players. Among Dutch GPs, quality doesn’t seem to be a problem and dealflow is good even though there are many interested parties.”
Wilhelm says: “This is an underserved market with few players and good companies looking for private equity capital. There are good opportunities at company level in technology growth and late mid-market. There is less competition for deals here than in France or in Germany but investors tend to overlook us in favour of the larger markets.” Tjarda Molenaar adds: “We are being discovered by foreign entities. But as in other countries, investors are interested in committing to the largest funds in the Netherlands.”
In keeping with the growth of private equity in the rest of Europe, the Dutch private equity market has seen a gradual growth and there haven’t been any big spikes in activity. This steady flow of private equity deals is unlikely to diminish or increase significantly in the near future.
Most private equity houses have been established in the Netherlands for some time and we are unlikely to see a large number of new entrants to the market. This said, the ready supply of money from the pension fund industry and high-networth-individuals (HNWI) means that the market is likely to maintain a steady growth rate. Brom comments: “The significant number of defined benefit schemes in the Netherlands means that there is a large pool of pension fund money for private equity players to tap into and good opportunity for growth.”
But the NVP would like to see a greater understanding of private equity in the Netherlands. Tjarda Molenaar explains: “On the whole, private equity is playing an increasingly important role in supporting entrepreneurship in the Netherlands. There is already a good range of opportunities in the market but there is still room for growth in the e50m-150m range. Entrepreneurs still don’t know enough about what private equity can do for their business.”