Dutch M&A trends in private equity

The Dutch M&A market experienced a notable shift in 2024, particularly in the realm of private equity (PE). After a significant spike in PE involvement in the first half of 2023, with PE accounting for 54 percent of all deals, there was a noticeable decline in 2024 in both volume and value, with the PE share stabilising at an average of 44 percent. This decline can be attributed to several factors, including high interest rates and geopolitical uncertainties that affected the global deals market. In the Netherlands, the M&A market experienced relative inactivity due to persistent bid-ask gaps, sluggish processes and many potential deals failing to materialise. Despite these challenges, some notable big deals were made, such as TPG Capital's acquisition of Aareon for 3.9 billion euro in the IT sector and Apollo's acquisition of Beequip for 1.4 billion euro in the Financial Services sector.

As we transition into 2025, the outlook for the Dutch M&A market appears more promising. The interest rate cuts since June 2024 have created a more favourable environment and a more stable interest rate landscape is anticipated. This, coupled with sustained high levels of dry powder, is expected to boost investor sentiment and increase capital deployment. While the start of the year may be challenging, there is optimism for increased activity in the mid-market, with larger deals expected to occur in the second half of 2025.

In 2025, several key themes and drivers are expected to influence M&A activity in the Netherlands. A primary driver should be the more stable interest rate environment, encouraging dealmaking. Geopolitical stability and the outcome of the US presidential election are also likely to impact dealmaking, with optimism surrounding deregulation and a stronger dollar prompting US companies to pursue acquisitions globally, including in Europe.

PE Fund managers are increasingly focused on the necessity to invest and divest, now Limited Partners (LPs) are facing sometimes stagnant cash flows from the funds in combination with commitments made to new funds. Some funds that postponed exits over the past two years may now be approaching the end of their legal life, leading investors to seek stability by investing in large, stable and more predictable private equity funds. However, the market for large assets may still see challenges for full exits, resulting in an increase in continuity vehicles, particularly in the Benelux region. This uncertainty has led to a rise in continuation funds, enabling private capital firms to return capital to LPs requesting cash flows, whilst allowing other LPs to continue their investments. An additional trend we see is that feeder funds are raised, allowing more individuals to participate in private equity funds with smaller tickets, fuelling the inflow of capital into this industry. 

Certain subsectors are expected to have an above average impact on driving PE investments, including IT services, software (particularly SaaS-related businesses), the semiconductor sector and the energy transition sector, especially infrastructure-related assets. The Dutch mid-market remains highly competitive. An example is Bridgepoint’s recent acquisition of Schuberg Philis, an IT company specialising in mission-critical IT services, cloud-native solutions and digital transformation.

Consolidation continues to be a significant theme driving M&A activity in 2025. Private equity firms are actively seeking prospects for consolidation and expansion, especially in the auditing and accounting sectors. Despite increasing scrutiny from the Dutch Financial Markets Authority (AFM) due to concerns over potential impacts on audit independence and quality, PE firms are pursuing opportunities to consolidate these sectors. The rationale behind this trend includes achieving economies of scale, enhancing service offerings and improving operational efficiencies. Consequently, consolidation is expected to play a pivotal role in shaping the M&A landscape, with PE firms leveraging their expertise to navigate regulatory challenges and capitalise on growth opportunities. 

Distressed M&A is likely to increase as assets requiring refinancing fail to meet budget forecasts. According to PwC's Bijzonder Beheer Barometer, the number of bankruptcies in the Netherlands has been rising since early 2022, driven by factors such as outdated business models, management quality and lingering Covid-19 debts. The retail and wholesale sectors are expected to be particularly affected due to declining purchasing power and high prices for energy, labour and rent. A notable example is the declared bankruptcy of household goods retailer Blokker in 2024, which underscores the challenges faced by the sector.

Other sectors like Industrials and Energy also face difficulties, especially those reliant on subsidies now encountering obstacles. Private equity is expected to positively impact restructuring opportunities, especially in a challenging economic climate. Current restructuring policies have limitations, underscoring the need for more effective measures to prevent unnecessary bankruptcies.

For PE firms, several strategic considerations are important for successful dealmaking in 2025. Portfolio optimisation remains a central focus, with firms aiming to streamline their portfolios and divest non-core or underperforming business units. Corporates are expected to divest oversized assets and sell to private equity; the carveout of Hanab (formerly V&N Group) with Triton acquiring is an example. 

Value creation is another critical area, with firms increasingly focusing on operational transformations to improve efficiency and productivity in their portfolio companies and hence justify high valuations. This proactive management approach aims to raise earnings by accelerating revenue growth or taking out costs. 

In light of value creation and risk mitigation, incorporating Environmental, Social & Governance (ESG) considerations in M&A activities can positively influence deal valuations and investment outcomes. More and more cases show a positive relationship between ESG performance and financial performance of PE portfolio companies. According to PwC's Global Private Equity Responsible Investment Survey 2023, seventy percent of PE firms consider ESG one of the top three drivers of value creation. This shift from compliance to value creation is evident as ESG factors are now woven into the entire deal lifecycle, influencing sourcing, due diligence, post-acquisition implementation and deal terms. Leading companies are actively seeking ESG-related opportunities, incorporating them into their exit strategy, leveraging green incentives and attracting green finance. Integrating ESG considerations can lead to cost-reductions, productivity improvements and new revenue streams, ultimately enhancing long-term financial value. Additionally, higher ESG scores have been shown to reduce the cost of capital, further incentivising firms to prioritise ESG factors.

Business model reinvention is also essential, particularly in sectors undergoing significant changes, such as technology and energy. PE firms need to stay agile and adapt their strategy and their portfolio companies' business models to capitalise on emerging opportunities and mitigate risks. Effective leadership and the ability to adapt to changes in AI, climate and new regulations are crucial for businesses to thrive. Regulatory compliance is an especially important consideration in light of increasing scrutiny from regulatory bodies. Firms must ensure they adhere to all relevant regulations to avoid potential legal and financial repercussions. 

According to PwC’s 28th CEO Survey, CEOs in the private equity sector are far more optimistic about global economic growth compared to last year. However, they are increasingly concerned about factors that could impact their company's revenue and profitability in the short term. Around 29 percent of CEOs in the private equity sector are most concerned about macroeconomic volatility and inflation, which is in line with the global average. The pressure to reinvent their businesses is substantial, leading to actions over the past five years that touch upon the company's business model. A significant number of CEOs plan to further integrate AI into their organisations, expecting it to enhance efficiency and profitability. Additionally, 69 percent of CEOs have made climate-friendly investments over the past five years, with more than half reporting higher revenues as a result.

In summary, the Dutch M&A market faced various challenges in 2024, but the outlook for 2025 is more optimistic. A more stable interest rate environment and sustained high levels of dry powder are anticipated to drive M&A activity. Key subsectors, such as IT, software, semiconductors and energy transition, are expected to experience increased investment. Strategic considerations for PE firms include portfolio optimisation, value creation and business model reinvention. To take full advantage of opportunities in 2025, M&A professionals should continue to concentrate on optimising their portfolios, maintaining a strong emphasis on value creation and making their business models agile for successful dealmaking.