Private Equity: Back on Track

Private Equity, The Netherlands | Report | Q4 2020

While 2020 has worked out differently to what was expected, some trends that were already developing in the financing market before the pandemic have strengthened further. The rise of direct lenders is one such example, and these lenders will be a firm feature of the European mid-market in 2021.

Although banks and direct lenders slowed their financing activities down during the second quarter of this year, they have become active in the second half of the year as M&A activities picked up and pressure on the deployment of funds increased. Lenders' initial reaction to the pandemic was to lower leverage and increase pricing, but in recent transactions we see that leverage and pricing have come back to pre-COVID-19 levels, as can be read in this report.

M&A activity in the Netherlands

In the first half of 2020, the COVID-19 crisis drastically changed M&A activity in the Netherlands. In the last quarter of 2020, the market showed resilience and bounced back towards record pre-crisis levels.

Before 2020, M&A activity in the Netherlands was relatively stable with approximately 100 deals per month. This drastically changed when the COVID-19 crisis hit. In Q2 2020, deal flow was more than 40% lower compared to the year before. The second half of 2020, however, shows a remarkable recovery of 211 and 308 deals in Q3 and Q4 2020 respectively, resembling on average 70 and 103 closed deals per month in these quarters.

The Dutch M&A market was hit harder than the global average in Q2, where deal flow dropped by about 25%. This was mainly caused by a strong drop in M&A activity of the PE community, a result of measures taken by local debt providers to hold off acquisition financing until the full scale of consequences on business due to COVID-19 had become clear. In the fourth quarter, debt providers seem to have a better understanding of the damage and have cautiously started to provide debt again. On top of this, Dutch PEs and (foreign) debt funds increasingly find each other. Consequently, PE related deals were twice as high in Q4 compared to Q2 and therefore back at precrisis levels. However, it should be noted that the strong uptick in closed deals in Q4 2020 is the result of a catch-up of deals that were postponed in Q2 and Q3.

When looking at the deal size categories, most notable in Q4 2020 is the share of deals larger than EUR 50m; it increased from 14% in Q2 and Q3 to 22% in Q4, a pre-crisis level. The distribution of deals in the Netherlands by sector has seen the TMT sector gaining share in Q4 2020 at the cost of all other sectors; the TMT sector represented 36% of the 2020 deal flow in the Netherlands, 5% more than in the third quarter of the year.