Private Equity: Powering Through

Private Equity, The Netherlands | Report | Q1 2023

Despite turbulent times, the Dutch M&A market continues at a steady pace.

The changed market conditions did not materially change the Q1 deal activity in the Netherlands, with 6 transactions more than 2022Q1 and equal to the average number of deals per quarter in 2022, as can be read in our report.

M&A activity in the Netherlands

After facing challenges in the past year such as geopolitical turmoil, inflation and rising interest rates, 2023 prospects brightened in the course of January with market experts projecting that Europe would not face a recession in 2023. Looking at our own project pipeline, we soon saw a strong inflow of pitch requests and new sell-side mandates. In March however, dark clouds appeared again due to the fear for a banking crisis that started with Silicon Valley Bank in the US and spread to Europe with Credit Suisse facing financial trouble.

Despite these challenges, the Dutch private equity market has demonstrated an increased appetite for deals, with 60 transactions recorded in Q1 2023, up from 54 in Q4 2022. Private equity deals also represented a larger relative share of deals in Q1 2023, rising from 20% to 22%.

European leveraged finance market

The year 2023 kicked off with a promising start for newly issued leveraged loans in its first weeks, due to a significant increase in the supply of high-yield bonds. However, tables somewhat turned when policymakers like the FED stated that the battle against inflation remains far from complete, and SVB and Credit Suisse underwent rescues, leading to increased market turmoil.

By the end of the quarter, the total amount reached €20.6bn, which marked the highest quarterly total since Q1 2022. Due to ongoing volatility in the loan and bond markets, borrowers remained cautious, despite strong demand from investors for assets. Traditional banks are becoming increasingly selective. In response, direct lenders are filling the gab, although they are only willing to do this because of their firm pricing.

In the coming months we foresee to add many deals to our track record. In the overall market, we expect the M&A dealflow to be lower than usual until the summer at the benefit of the deal flow at the end of the year, with new propositions accumulating in anticipation of more stable markets. Looking at valuations, the drastically changed financing costs over the past 12 months naturally had a significant impact on amounts buyers can pay. With more stable interest rates and sellers slowly getting used to the new reality, valuations seem to have found a new balance. FRANK DE HEK, PARTNER

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