• Belgian companies more frequently
    taken over by foreign players

Belgian companies more frequently taken over by foreign players

12 June 2017

In contrast to a decreasing trend on the international mergers and acquisitions market in 2016, the Belgian M&A market has experienced further growth, particularly with regard to medium-sized and smaller deals. The demand exceeds the supply. Although transaction prices are rising, they are still acceptable. Anyone wishing to sell a profitable business these days can easily find a buyer. This can be explained by the fact that bank financing has become easier, as well as increased interest by foreign players in Belgian companies.

This was revealed by a survey conducted among 120 Belgian M&A consultants and experts, including corporate finance advisers, bankers, lawyers and private equity investors. The respondents are primarily engaged in medium-sized takeover deals worth between 5 and 50 million euros. The study examined their experiences on the M&A market and the deals in which they were involved in 2016, on the one hand, and their expectations for this year, on the other. This edition of the annual M&A Monitor was compiled under the leadership of Professor Mathieu Luypaert of the Vlerick Centre for Mergers, Acquisitions & Buyouts in collaboration with Bank J.Van Breda & Co, BDO and Gimv.

Cross-border transactions

The survey clearly revealed that Belgian companies are increasingly being taken over by foreign players. 73% of respondents noted a growth. The increase of Belgian acquisitions of foreign companies is less pronounced (only 63% had noted an increase in this case).

  • Of all deals in which the respondents were engaged in 2016, only one third were foreign. Belgian companies primarily take over other companies in their own country.
  • Belgian companies engaged in a foreign takeover do this primarily in Europe (64%) or the USA (17%).
  • In only 53% of foreign deals was the transaction initiated by the selling company. In a foreign takeover, the buyer often has a specific geographic market, technology or target in mind. With regard to takeovers in Belgium, the initiative was taken by the selling party in 63% of all cases. Belgian parties looking for acquisitions must therefore be more actively on the lookout for a foreign takeover target.
  • Foreign transactions are slightly more expensive: on average, 7 times the EBITDA (i.e. the operational cash flow) is paid, as opposed to 6.4 times in Belgium.
  • Additionally, closing a foreign deal takes longer and is more complex: a domestic transaction takes 6 months to complete on average, while it takes an average of 8 months for a foreign deal to be brought to a conclusion. This is because of the various barriers: linguistic, legislative, cultural, etc.

Professor Mathieu Luypaert explains: “Geographically speaking, Belgium is an interesting gateway to Europe, particularly for the Asian market. Just think of the interest that State Grid took in Eandis, or second-tier football club OHL that has been taken into Thai hands. Additionally, the acceptable acquisition prices in our country ensure that foreign investment funds are looking more in our direction. The competition between private equity players interested in Belgian targets has strongly increased. Finally, respondents often refer to uncertainty with regard to the political situation. Traditionally speaking, Belgian buyers have been primarily interested in companies in France, the Netherlands, the USA, Germany and the UK, but these are countries where there is now great uncertainty around trade agreements and elections. This has certainly deterred Belgian companies from taking over foreign companies.”

What is also notable is that respondents take a rather critical stance towards this growing international interest. “The study has revealed that Belgian M&A advisers believe that Belgian companies – and particularly young growing companies with high potential – are typically sold too often and too early. As a result, centres of decision are disappearing from Belgium. This can partially be attributed to courage and culture. Belgian entrepreneurs sometimes opt for financial security. On the other hand, concluding a deal with a foreign player can sometimes lead to the strong growth of your company in the short term, and accelerate internationalisation. For the parties involved, such takeovers are certainly not negative, but it can be disadvantageous for Belgium with regard to employment, entrepreneurial climate, image or lost opportunities for extra local growth.”

Belgian M&A market growing

In contrast to a decreasing trend in the international M&A market in 2016, the Belgian M&A market has experienced further growth.

  • 67% of respondents noted an increase in the number of transactions in Belgium in 2016. Almost half (42%) even indicated an increase of over 10%.
  • Firstly, this can be attributed to the size of the transactions. The Belgian M&A market is primarily characterised by small and medium-sized deals, which just happen to be most highly favoured transactions in the world today. Secondly, prices for Belgian companies remain reasonably fair in comparison to other countries.
  • Peak M&A growth has not yet been reached. 57% of respondents anticipate that the M&A market will continue to grow in 2017, although 2015 and 2016 were record years in terms of the number of transactions.

Professor Mathieu Luypaert: “When we look at the total amount spent on acquisitions worldwide, there is clearly a peak in 2015, followed by a strong drop in 2016. However, the total number of deals on the international M&A market did not drop in 2016; there was in fact a slight increase. This demonstrates that primarily smaller transactions are taking place. The market is no longer dominated by the mega-deals and billion-euro transactions of 2015. Nevertheless, the market is still extremely active, but primarily in the mid-segment and below.”


What are the companies worth?

  • On average, 6.4 times the EBITDA value (i.e. the operational cash flow) was paid in 2016 across all branches of industry and sizes of companies. In 2015, this number was 6.1 times the EBITDA – as opposed to 5 times, on average, in 2013. In other words, anyone selling their company today will receive no less than 1.4 times as much for the same company.
  • In the smaller businesses segment (in which the value of the company is less than 5 million euros), prices remained more or less stable: on average, 4.7 times the EBITDA is paid.
  • With regard to larger transactions (> 100 million euros) the circumstances in the market are clearly having an impact, and deals in this segment come to an average of 8.2 times the EBITDA.

Mathieu Luypaert: “Smaller companies are, typically speaking, a higher risk. Their success often strongly depends on their founder. For larger, more established companies, the chance of bankruptcy is small, and they operate in a more professional framework and have greater possibilities for synergy. Therefore, you pay more for a large company.”

Increasing competition

The fact that the prices for companies are still increasing can mainly be attributed to the fact that demand exceeds supply. Every Belgian company that was for sale in 2016 received bids from five companies on average. In 2015, this number was only four. This is not only due to the increased foreign interest in Belgian companies, but also the increased availability of funding. These days, banks are more likely to provide loans for acquisitions. So there are more players actively engaged in the market, which is causing prices to rise.

“Despite the price increase, the Belgian market is still fairly priced,” continues Luypaert. “Certainly in comparison with our neighbouring countries. Additionally, the Belgian private equity market is not yet as strongly developed as in our neighbouring countries. Finally, many entrepreneurs of the baby-boom generation are putting off the sale of their companies, given low interest rates on savings in the bank. So owners of quality businesses will not find it difficult to find buyers today.”

Financing is smoother

  • On average, businesses can borrow 3.2 times their own EBITDA (versus 2.9 in 2015) from the bank to finance an acquisition transaction.* The increase in the maximum debt financing applies to all sizes of deals, but particularly in the small businesses segment.
  • “Typical growth sectors are often strongly technology-driven, but these businesses are also more risky. Banks are clearly in search of alternatives by playing a more active role on the M&A market. They are prepared to go a little further than previously, even in the smaller segment.”
  • The use of vendor loans – in which the payment of the acquisition price is partially deferred through a loan from the seller – has dropped from 42% to 36%.
  • Cases where a deferred loan depends on specific parameters (e.g. the development of the EBITDA after the sale), which is called the 'earn-out', have dropped from 31% to 26%.

Download the full research report '2017 M&A Monitor - shedding light on M&A in Belgium'.

* To calculate how far you can go to finance a transaction, the figures traditionally taken into account are the proportion of the net financial debt in relation to the EBITDA. In other words: the total financial debt of the buyer (following deduction of the available liquid assets) in relation to the operational cash flow.