Navigating through the cycle
Private Equity, The Netherlands | Report | Q3 2020
In the past decade the private equity (PE) and related industries have experienced a tailwind like never before. The outbreak of COVID-19 drastically changed the direction of the wind, and portfolio companies suddenly needed their support to cope with the new environment.
Now that the dust has settled, investment managers are starting to look for deals again. And with the abundance of capital available and many sectors still performing strongly, deal flow and valuations do not seem to be hit as hard as was seen in 2008. The impact of the pandemic on the Dutch M&A landscape has, however, been quite different from other countries, as can be read in this report.
M&A activity in the Netherlands
The M&A deal flow has been relatively stable in recent years. But the COVID-19 crisis is radically changing the landscape. Between Q1 2018 and Q1 2020, M&A activity in the Netherlands has been relatively stable, with approximately 100 deals per month. This changed dramatically, when the pandemic hit. The deal flow in Q2 2020 decreased by approximately 30% compared to Q1 2020, with an average of about 54 deals per month. Q3 shows a slight recovery with a total of 211 closed transactions, averaging 70 deals per month. The Dutch M&A market was hit harder than the global mean, where deal flow dropped by about 25% in the period from March to June. This, among other factors, is the result of measures taken by local debt providers, as will be touched upon further on in this report.
When looking at the deal size categories, the number of deals below €5 million EV shows a declining trend during 2018 and 2019 as a result of improved company performance and higher valuations, among other reasons. As is typical during a crisis, the deal flow of small transactions is not hit as hard as their larger equivalents, thereby increasing market share. Nevertheless, closed deals in the Netherlands are still dominated by deals with an EV of between €5 million and €50 million, which still represent circa 67% of total Q3 deal flow. This is independent of whether the deal involves PE or strategic buyers.
In the Netherlands, the distribution of deals by sector has not changed much in the past five years. During the coronavirus crisis, however, the relative activity in the TMT and food sectors (sectors positively correlated to the COVID-19 crisis) increased, where all other sectors experienced decreased activity.
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