28 January 2015

The investment climate both for buying and selling Belgian SMEs improved further in 2014, a year that also saw an increase in the number of businesses for sale and the number of interested buyers. “Far more capital was available in 2014”, explains Miguel Meuleman, Professor of Entrepreneurship at Vlerick Business School. ‘The crisis that inhibited the market is also behind us. Lastly, businesses that made it through the crisis with good figures are easier to sell.’ But there is also a downside. Tougher competition and an increase in prices mean that investors are finding it increasingly difficult to make good deals and achieve a high return. Expectations for 2015 are ultimately optimisti

That is clear from the second edition of the Entrepreneurial Buyout Monitor, which reports on the buying and selling of Belgian SMEs in 2014, on the one hand, and makes forecasts for 2015 on the other. In total, 169 experts were interviewed, including bankers, private equity players, corporate finance consultants, lawyers, and brokers. Most of the respondents were involved in medium-sized deals of up to 20 million euros. The survey was organised by Vlerick Business School and BDO Belgium, which pooled their expertise in the Platform for Entrepreneurial Buyouts.

More players, higher prices, and more professional

Buyers indicate that they are experiencing significantly more competition in the selling process, particularly as regards medium-sized (5-20 million) and large (more than 20 million) deals. We are consequently seeing a trend towards more focus, specialisation, and synergy. The quest for growth is also a major driver in buying a business.

Miguel Meuleman: ‘There are more players in the market, certainly as far as industrial parties or corporate buyers are concerned. Buying another business is often the only way a business can continue to expand in an economic climate where there is hardly any growth any more. We are thus seeing a lot of consolidation in many sectors.’

But that growth does not happen by itself, continues Miguel Meuleman: ‘The human factor is very important. A vision is needed and competition ensures that you must have a strong plan and sound commercial judgement to be able to create value. For many SMEs that used to be conservative, the combination of new capital and strong entrepreneurship can ensure new impetus and growth.’

However, competition also means higher prices. As the Monitor indicates, there was a price increase for all deal segments in 2014. On average, 5.6 times the EBITDA value was paid in 2014, compared to 5.0 in 2013. The greatest price increase was in the segment for deals in excess of 20 million euros, where a multiple of 6.8 was paid on average in 2014. Thus, the larger the transaction segment, the more expensive the price. Prices remained practically stable in the small segment of deals of less than 5 million euros in 2014. The price increase is in line with expectations and the respondents think that it will continue in 2015.

Hans Vanoorbeek, Executive in Residence at Vlerick Business School: ‘It is becoming increasingly difficult to find good deals at a good price. More and more players are searching for growth businesses or businesses with potential for growth. And, because selling prices are higher, it is also becoming more difficult to make high returns on investments.’

Lastly, the survey also shows that it took longer to close a deal in 2014. That is the case in the segment of smaller deals of less than 5 million euros in particular. The respondents indicate that the selling process for small and medium-sized deals has become more professional too.


On average, the buyer needs to be able to self-finance 36.7% of the selling price through parties other than the bank. That is a little lower for small deals (32.7%). The figure has remained almost the same as in 2013.

Hans Vanoorbeek: ‘Indeed, in small deals, immovable property also forms part of the selling price and less is financed on the basis of cash flow. Conversely, one expects a slight decrease in individual investment for larger transactions. After all, more debt financing is available at the banks.’

The share of external equity needed to close a deal rose in all segments in 2014, but particularly for medium-sized and large deals. This external capital comes mostly from private equity players, family offices, or individuals.

Hans Vanoorbeek: ‘A lot more capital is available. Savings accounts are yielding little interest and the stock exchange and property market are also uncertain. By purchasing a business – especially in the smaller segment where competition is not as fierce – you can still earn a certain return on your investment, as well as engaging your entrepreneurial mindset. We note that most investors are nonetheless becoming increasingly satisfied with a lower return. General expectations lie between a 10 and 20% return a year, but that is obviously different for a family office or wealthy individual than for a private equity player funded by institutional investors.’

Generally speaking, the cost of borrowing money decreased significantly in 2014 due to a sharp fall in the EURIBOR. Bankers expect that the cost of debt will decrease further in 2015 or at least remain stable. Miguel Meuleman: ‘Now that the crisis has passed its peak, banks are prepared to grant more credit again. This makes it easier to close deals and credit has moreover become cheaper.’

Finally alternative financial methods are also being used more frequently to bridge the gap. Earn-outs, in which payment of a portion of the selling price is deferred and dependent on the operating result achieved, are becoming increasingly common in smaller deals. After all, the operating result is often more uncertain in a smaller deal. Vendor loans are also becoming more popular in the small and medium-sized segments. This is where the vendor is prepared to temporarily lend a portion of the selling price to the buyer and thus remains involved to some extent after the sale. Lastly, mezzanine financing is gaining importance in the segment for small to medium-sized deals. Mezzanine financing helps to bridge the gap between the debt financing provided by banks and equity financing.