M&A Outlook Benelux 2020

By most accounts, 2019 was a great year for midcap deal-making in the Benelux. Spurred by an active private equity sector, the easy availability of capital and retiring baby boomers ready to sell their businesses, there was ample M&A activity across almost all sectors. What will 2020 bring? We asked around in our network, went through a pile of outlook reports, and came up with four trends that will shape this year’s M&A market in the Benelux.

Graph of M&A transactions in the Netherlands
Source: Baker & Mckenzie (2019). Netherlands - M&A and IPO transactions [table] Global Transactions Forecast 2020: Powering Through the Downturn
Graph of M&A transactions in Belgium
Source: Baker & Mckenzie (2019). Belgium - M&A and IPO transactions [table] Global Transactions Forecast 2020: Powering Through the Downturn

1. Optimism despite macro-economic uncertainty

After two record-breaking years, 2019 was again a strong year for M&A globally. Overall, the global outlook for 2020 is optimistic, despite growing geopolitical and macro-economic uncertainty. Nearly all of 1,000 executives and investors that participated in Deloitte’s annual M&A trends survey anticipate that M&A activity will continue at an active pace in 2020. In their Global Transactions Forecast 2020, Baker McKenzie foresees only a temporary dip in M&A and IPO activity — and for some investors and companies, the increasing volatility of the market will also create opportunities.

This cautious optimism is shared by investors and M&A professionals in the Benelux region. “Though debt financing has cooled down a little bit compared to the past two years, investment capital is still readily available,” says Vincent Daelemans, principal at Belgian corporate finance advisor Allyum. “The Belgian economy is still showing a healthy growth, so I don’t see any signs that there is downward pressure on valuations. Overall, there is a lot of appetite for investment, especially among private equity funds.” Barbara Arnst of Belgian investment company Gimv is equally optimistic. “In 2020, as last year, I expect demand to keep on exceeding supply and it will remain a challenge to put money at work smartly. We see interesting opportunities in for example the broader Food space, where trends around niche branding, health and sustainability, open up interesting growth angles.”

Frank Verbeek, managing partner of IMPROVED Corporate Finance, stresses that it is important to distinguish between market segments. In the lower end of the market (revenues between €1 and €10 million) he expects rising deal activity, but decreasing multiples, whereas the Dutch midcap market (revenues between €10 and €50 million) will most likely cool down. “Many Dutch midcap companies will be on the lookout for strategic partners, to avoid being left behind in the ongoing wave of internationalisation. A lot of these strategic partners are based in the US.

However, American buyers are having doubts about the sustainability of the growth in their home market and are less eager to make foreign acquisitions. Valuations will not exceed the levels of 2019.” According to Verbeek, the higher end of the Dutch midcap market will flourish in 2020. This segment can expect great interest from foreign buyers who want to expand their commercial footprint and open up new markets. Verbeek: “This will result in higher multiples and bigger deal flow.”

2. Sanity is returning to the market

The M&A market, globally as well as in the Benelux, experienced an unprecedented three-year run, with record-breaking valuations and a seemingly unstoppable deal flow. In all likelihood, this run has come to an end. Some argue that a return to more modest valuations is not a bad thing. “Sanity is returning to the Dutch M&A market,” claims Evert Jan de Groot of Vortex Capital Partners. “Investors have become more careful, given the talk of a looming recession. They avoid unnecessary risks and assess long-term growth more critically.” There is no reason for concern, De Groot thinks. “Let’s face it, valuations are still at a very healthy level. Especially on the sellers’ side, the outlook is quite good. Strategic acquisitions will continue unabated. There is an unbelievably high level of dry powder, which will continue to drive strategic add-on acquisitions and private equity deals.”

3. A push for pan-European M&A

In 2020, Western Europe will continue to attract the attention of American and Asian (strategic) buyers. No less than six European countries are represented in the top 10 of Baker McKenzie’s Transactions Attractiveness Indicator, that ranks the attractiveness of a country’s business environment for M&A and IPO. The Netherlands takes up the third spot (after Hong Kong and Singapore), with Belgium coming in sixth. From a macro-economic perspective there is a downside to Europe’s (and the Benelux’) attractiveness to foreign buyers. As stated by JP Morgan in their 2020 Global M&A Outlook: “Europe is at risk of losing its competitive advantage after a strong year of transformational deals in North America; unless Europe resurfaces into the takeover arena, there is a risk the region will be locked between a more powerful North America and Asia Pacific (driven by a resurgent Chinese economy).”

“European dependency on foreign markets is eyed more critically than before,” agrees De Groot. “Outside of Europe, protectionist ideas are gaining ground. This may very well be a stimulus for Pan-European deal making. In IT and Telecom I already see a push, driven by private equity, to consolidate on a European scale.”

Within the Benelux, cross-border deals are business-as-usual, says Arnst: “Cross-border deals and investments have always been common. At Gimv, we have offices both in Antwerp and Den Haag and we collaborate on buy-and-build opportunities across our borders.” Daelemans notices a “growing interest” in Belgian companies from investors and strategic buyers from France, the Netherlands and Germany.

4. Strategic acquisitions

“We will utilise M&A to navigate digital transformation and help future-proof our business.” When EY put this statement to the respondents of its Global Confidence Barometer (Fall 2019 edition), 42% agreed. The same report also showed that for the majority of the companies, acquiring technology through acquisitions (direct or indirect) is a higher priority than in-house technology investment.

It illustrates why strategic factors continue to drive acquisitions globally and in the Benelux, as corporates seek access to new markets, want to acquire the latest technology or are in need of highly skilled workers. Due to their long time to market, an inability to come up with their own innovations, and pressure to implement new sustainable solutions, corporates are more than willing to pay a premium for innovative companies with commercially viable technologies, explains Verbeek.

This year, he expects traction in the verticals mobility, energy transition, fintech and health technology. “In these sectors, there are plenty of fast-growing businesses that are in great demand. Corporates that are lagging behind in sustainability are willing to dig deep to acquire the know-how and innovation they desperately need.” In 2020, the push for digitisation will continue in virtually all sectors, adds De Groot. “Though large American tech platforms have come under increased scrutiny, tech platforms will become even more relevant than they are already. We are especially interested in buy-outs of innovative companies that can grow fast in existing markets whereby technologies enable them to scale up faster than incumbents.”

Author: Rob Hartgers