NETHERLANDS: An Introduction to Corporate/M&A: High-end Capability

High End M&A: Introduction

The Netherlands is a preferred location for M&A transactions, attracting global investors with its stable economy, strategic location, and business-friendly environment. Known for its highly developed infrastructure and innovative business landscape, the Netherlands offers a beneficial environment for M&A activities, offering numerous opportunities for development and expansion.

The Dutch market is characterised by its openness to foreign investments, supported by transparent regulatory frameworks and favourable tax policies. This has positioned the Netherlands as a preferred destination for multinational corporations seeking strategic acquisitions and partnerships. The Netherlands’ skilled workforce and innovative culture further enhance its appeal as a prime location for M&A activities.

Dutch M&A Market Trends

We have summarised below a couple interesting Dutch M&A trends which we derive from our daily practice, which summary is obviously not intended to be exhaustive.

Auction trends

We have seen an increase in failed or aborted sell-side auction processes as a result of the perceived buyer’s market, where buyers are less willing to comply with strict procedures or pay EBITDA multiples that are no longer justifiable considering the current interest rate market- and geo-political dynamics. We also see auction processes where one bidder that is ahead of the pack tries to get to an expedited deal with the sellers, which is further evidence of the momentum buyers have gained.

That being said, there is still a significant amount of dry powder available in the market, which will need to start making a return. Fund managers will be under pressure to deploy available capital, which will likely lead to an increase in M&A activity during the second half of 2024 and during 2025.

Sector trends

Looking at the Dutch M&A market from a sector perspective, we have seen a further consolidation of specific regulated markets, such as the insurance sector and the banking sector, as well as high levels of M&A activity in the energy sector and the technology, media and telecommunication (TMT) sector.

Furthermore, we have seen an interesting consolidation trend in the professional services industry, where midsized and small accountancy firms continue to be acquired by investors. Although regulators appear to be concerned about this, we expect this trend to continue.

In the healthcare sector, a public debate on the position of PE investors led to a review, by a big four associated consultancy firm, of the quality, accessibility and affordability of care in healthcare institutions that are wholly or partially owned by PE investors. The review concluded that no demonstrable differences exist between healthcare institutions that are PE owned and healthcare institutions that are not. 

Fund / PE trends

During 2023 and the first half of 2024, we have continued to see considerable activity at PE fund and PE fund manager level in the Dutch M&A market. This activity varies from the milestone acquisition of a sizable Dutch fund manager by a global PE player, to increasing interest in setting up ‘continuation funds’, which allow sponsors to maintain one or more assets beyond the relevant fund term.

Continuation funds are a relatively new phenomenon and we expect that they will gain significance in the foreseeable future, as it often makes more sense economically to maintain growth momentum for well performing portfolio companies rather than prematurely selling to another investor or initiating a public listing simply because the fund term is lapsing.

Starting in the course of 2023, but continuing into 2024, buy and build strategies have led to higher transaction volumes, driven by the fact that valuations are generally more realistic.

Finally, another trend adopted by the largest PE firms, is the introduction of a broader “shared ownership initiative” to invest in better management and achieve higher returns by increasing the number of employees within the organisation who are eligible for some form of management equity ownership/incentive.

Regulatory developments

FDI

The growing importance of European Foreign Direct Investments (FDI) regulations in M&A transactions reflects a global trend towards protecting national interests, maintaining economic stability, and navigating geopolitical dynamics. Strategic industries, such as technology, infrastructure, defence, and healthcare, are now often subject to (stringent) FDI regulations. Thorough due diligence is required to understand the regulatory environment across jurisdictions, ensure compliance and enable successful cross-border transactions.

FSR

The European Foreign Subsidies Regulation (FSR) has been in effect since 12 July 2023 and is becoming increasingly important in M&A transactions. The FSR aims to establish a harmonised framework to address distortions caused by foreign subsidies, with a view to ensuring a level playing field. In M&A transactions, clients must assess how foreign subsidies might impact target companies and market competition. By incorporating FSR considerations into due diligence and deal structuring, clients can mitigate risks and secure regulatory approvals.

ESG

Environmental, Social & Governance (ESG) regulations are also increasingly critical in M&A transactions, reflecting a broader shift towards sustainable and responsible business practices. Buyers must ensure that the target company complies with all relevant ESG regulations to avoid inheriting legal risks and potential liabilities. Companies that integrate ESG considerations into their M&A strategies can enhance compliance, meet stakeholder expectations, protect their reputation, and manage risks effectively.

DORA

The European Digital Operational Resilience Act (DORA) entered into force on 16 January 2023 and will apply as of 17 January 2025. DORA will significantly influence M&A transactions, particularly in the financial sector, by imposing stricter standards for cybersecurity, risk management, and third-party risks. Buyers will have to identify potential vulnerabilities in target companies’ cybersecurity measures and invest in necessary upgrades or integrations to meet DORA standards. DORA is, therefore, expected to have a high impact and will require significant efforts to ensure timely compliance by qualifying financial institutions, their counterparts and ICT third-party service providers.

Conclusion/forward looking statement

While uncertainties remain in the market, investors and corporates are optimistic about deal activity in the final months of 2024 and the start of 2025. From an institutional investor perspective, the largest US and EU pension funds and other institutional investors are significantly increasing their PE allocations to secure sufficient returns to meet their own payment obligations and return expectations. Investor trust in the sector will lead to increased deal activity in the coming months and years. In terms of deal execution, European and Dutch legislative developments will be closely followed in the coming months.