Private Equity: A New Reality

Private Equity, The Netherlands | Report | Q4 2022

Despite a steep drop in the second half of the year, overall M&A activity in the Netherlands in 2022 remained relatively strong in a challenging dealmaking environment.

After a record-breaking 2021, M&A activity declined with 12% in 2022 as a result of challenging dealmaking conditions, as can be read in our report.

M&A activity in the Netherlands

Despite being lower than 2021, 2022 was still well-above historical average with 1,110 deals, indicating a strong M&A year. In the Netherlands however, particularly in the last two consecutive quarters, 15% lower M&A activity was reported versus the second half of 2021, highlighting the deteriorating dealmaking conditions.

Looking more specifically at Q4 2022, the data shows that the number of deals completed by private equity firms is the lowest it has been in the past three years, with the exception of two quarters impacted by the pandemic in 2020. In fact, the number of deals completed by private equity firms in the last quarter was almost cut in half compared to Q4 2021. This aligns with our observations in the field, where we have seen private equity firms dropping out of transactions more quickly and exhibiting greater hesitation to close deals compared to strategic buyers. This is driven by a long-term vision of strategics that looks beyond a (possible) short-term dip, the lack of bank financing for new platform deals as well as PEs being occupied with challenges within their portfolio.

Record low loan volumes

2022 ended up with the lowest recorded volumes of new issued leveraged loans in the last ten years, and lowest volume of high-yield bonds in the last fourteen years, being the result of the war in Ukraine, drastically increasing inflation and rising interest rates.

Market players seem to await how deep the downturn will be before entering into new sizeable underwritten loans. As highlighted later in this newsletter, lenders are hesitant to initiate such loans as they recently lost large amounts, as a result of having to sell off new underwritten debt at large discounts to spread their risk.

Based on current market conditions, we expect the M&A market to remain relatively slow during the first half of 2023. However, as individuals, organizations and global markets become accustomed to the new reality, we expect to see an increase in M&A activity in the second half of 2023, especially because there is still an enormous rationale for consolidation, strategic moves as well as a drive to realize returns. FRANK DE HEK, PARTNER

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