Market Spotlight: Benelux Deal Momentum

By Suzy Bibko, Content Marketing Manager, EMEA

Resilience. It’s a word that keeps coming up regarding last year, especially in terms of M&A. And the numbers bear it out: 2020 EMEA deal value was only 1% down from 2019, with the top end of the market especially active (28 deals worth €5bn or more in 2020 versus 16 in 2019). And while Benelux saw the M&A deal count decrease 17% yoy, dealmaking there rebounded in H2 and the region accounted for over 10% of the overall European deal count last year. Will Benelux maintain its resilience in 2021? What will be the keys to success? Harry Ghillemyn, Jeroen Lenssen, Jessica Lombardo, Jerome Pottier, and Charlie Taylor-Kroll discussed these issues at our recent webinar.

Dry powder: at the ready
According to our latest Deal Drivers: EMEA FY 2020 report, private equity was a major contributor to overall M&A activity levels last year as buyout firms, eager to deploy the US$2.5trn of dry powder sitting in their war chests, continued to invest in new deals. In fact, buyout value rose 15% yoy to €194.7bn, even as volume fell 6%, as firms successfully pursued large deals. But there’s still quite a bit of powder to be deployed.

“The good news is that there is still solid deal flow in Benelux despite uncertainty and pricing gaps and pressure on certain sectors,” says Lombardo. “Our practice, as well as others, are actually having to decide between mandates at the moment because of the workload that is there in the market, which is great. And while this is probably not a new trend, but one that has continued and maybe even been strengthened by the pandemic, there is a large amount of capital to spend, because not all PEs and corporates have met their budgets of last year with things being put on hold. So there's a sort of a backlog of capital to be spent. This will continue to drive significant M&A and higher multiples for some time.” 

Ghillemyn agrees: “I think 2021 will largely be a continuation of 2020, with continued activity from investors responsible for opportunistic investments, because there are some sectors that have experienced financial or economic distress, due to the lockdown, which has impacted valuation. We've been extremely busy in all sectors, which are related to tech, life sciences, private equity, and we see a lot of appetite from our US clients for targets that are located in technology clusters. Equally, you have bigger, well-capitalized Benelux firms that are increasing and pursuing technology-driven investments. So, things like technology and life sciences, opportunistic investments, and consolidation and scale will be major trends for 2021.”

Preparation and technology: keys to success
There seems to be no denying that the deals are out there and are continuing to be done. As Pottier says, “Most PE funds still have a lot of dry powder in their hands to invest. The ultimate goal is really to be able to find a deal.” What will be most important for success once you find a deal? Over half of our webinar audience believe it comes down to strategy, and identifying and screening targets. Clearly, that old saying rings true: preparation is key to success.

“I think there's a clear shift in the market towards quality, the quality of companies,” explains Lenssen. “You see valuations really driving upwards, both on the equity side but also on the debt side. And here you also see processes being shorter in terms of evaluation. I think it just underlines how competitive the market is for high-quality companies and I think there's a very superior distinction to be made between companies that are doing okay or perhaps are struggling.”

And this is where technology comes in. We recently interviewed over 2,000 global M&A practitioners for our New State of M&A report, and 99% of Benelux practitioners believe due diligence on a successful deal will accelerate to three months or less in five years’ time over the next five years, with 64% believing it could be shortened to one month or less. Moreover, almost half of Benelux practitioners believe that new technologies and digitization could enhance due diligence the most.

“COVID has really accelerated the digital transformation of M&A,” says Pottier. “At Datasite we’re helping people get deals done no matter where they are and helping foster collaboration, quickly and securely. For example, Datasite Outreach automates the deal marketing process and improves efficiency in this phase by 75%, through centralized tracking tools, an embedded email engine to streamline email and communication, and aggregated analytics to provide insight on buyers and market trends. And, of course, artificial intelligence and machine learning capabilities allow the client to save a lot of time and avoid errors before, during, and after due diligence. In a post-COVID world, you will need to do a lot more during due diligence to succeed, and Datasite can help you do that.”