Belgium M&A Review 2009/2010

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Please give a brief overview of the public M&A market in your jurisdiction. (Has it been active? What were the big deals over the past year? Please distinguish between trade buyers and private equity backed deals.)

The impact of the economic downturn in 2009 and 2010 in Belgium has been fairly limited compared to some other EU member states. This can, in part, be explained by the fact that the Belgian economy is dominated by small and medium-sized companies.

These companies are mostly financed with their own equity as opposed to debt equity, protecting Belgium from the credit crisis’ worst effects. However, M&A activity has slowed down: both trade buyers and private equity houses have been less active and adopted a wait-and-see approach, and the focus has shifted more to insolvency and corporate restructuring.

According to projections of the International Monetary Fund, the European Commission (EC) and the Belgian Federal Planning Agency, the worst part of the economic crisis is over and the Belgian economy is expected to grow by 0.5% in 2010. The outlook for 2010 is better than 2009, as the start of the economic recovery might result in an increase of private equity investments and M&A activity, in particular in the biotech, energy and logistics industries. Unemployment rates are still expected to increase in 2010, due to necessary restructurings and the rising number of bankruptcies, in particular of small and medium-sized companies. Therefore, it is expected that the focus in 2010 will remain on corporate restructuring and insolvency proceedings and that a significant increase in M&A work should not be expected before the second half of 2010 or the first half of 2011.

General
Major deals in 2009 included the following:

The largest deal was the EUR4.5 billion (about US$6.1 billion) acquisition by Abbot, a global broad-based health care company, of the entire pharmaceutical business of Solvay, an international and pharmaceutical group with headquarters in Brussels and listed on Euronext Brussels.

In January 2009, Publigas, the natural gas holding of Belgian municipalities, agreed to sell 6.25% of its 31.25% stake in Distrigas (formerly Distrigaz), a Belgian gas distributor, to ENI, an Italian energy company.

In May 2009, Publigas acquired a 6% stake in Fluxys, the Belgian independent operator of the natural gas transmission system, for EUR114 million (about US$155 million).

In the first half of 2009, ENI, an Italian energy group, acquired a 57% stake in Distrigaz, the Belgian natural gas distribution company (EUR1.99 billion (about US$2.71 billion)).

Belgian companies were also actively involved in M&A transactions abroad:
In March 2010, the GIMV announced the divestment of its participation in Language & Computing (L&C) (US) to Nuance, a Nasdaq listed company. No further financial information was disclosed.

In November 2009, Delhaize group, a Belgium-based international food distributor, completed, through its subsidiary Alfa-Beta Vassilopoulos, the acquisition of Koryfi, a Greek food distributor, for EUR7 million (about US$9.5 million) (plus EUR1.8 million (about US$2.5 million) financial debt).

In December 2009, Société Générale and Dexia came to terms in relation to the divestment by Dexia of its 20% participation in Crédit du Nord for EUR645 million (about US$879 million) in cash. As a result, Société Générale now owns 100% of Crédit du Nord, enforcing the retail banking position of Société Générale in France.

In September 2009, Sandoz, a division of the Belgian Novartis group, acquired, for EUR925 million (about US$1.3 billion), the generic injectables business of the Austria based EBEWE Pharma.

Private equity
While the international private equity market suffered a serious setback last year, the activity of the investment funds in Belgium remained stable, according to the statistics of the Belgian Venture Capital & Private Equity Association (BVA). Also, the limited amount of large-cap deals (that is, exceeding EUR500 million (about US$681 million)) in the Belgian market has helped to cushion it from the credit crunch’s worst effects. In this respect, the crisis has had a limited impact on Belgian private equity compared to foreign private equity. This is mainly because the Belgian mid-market, which involves small- and medium-sized companies, and represents the majority of private equity deals in Belgium, requires less debt and fewer subscribers, and because Belgian private equity houses tend to use less leverage to finance their buyouts.

Belgium’s legislative framework, and its high number of familyowned businesses (many of which will be up for sale as the owners retire in the coming years) creates fertile ground for private equity.

In 2009, there were fewer buyouts, but this was compensated for by more venture equity capital and growth capital transactions with a special focus on the pharmaceutical industry, the alterna¬tive energy sources industry and the biotech sector, and puts it in a strong position for future investment. The increase within the venture capital market has been driven mainly by expansion capital, while seed and start-up capital have decreased. However, government initiatives are being taken to encourage the creation of mechanisms to ease the shortage of funds for start-ups. The Flemish Fund for Innovation (VINNOF) is an example of such an initiative.

Some of the most important deals in 2009 were the capital in¬creases of the wind energy producer Electrawinds and the photo voltaic panels installer, Enfinity. Fewer foreign private equity groups were active in the Belgian market, but one notable exam¬ple is the British CVC Capital Partners that took over a participa¬tion of the Danish postal services in the Belgian Post.

Outlook
According to analysts, the outlook for Belgium over the coming year is probably brighter than for some other countries in the EU, given the country’s welcoming legal regime and the relative¬ly small effects of the credit crunch on the economy. A survey among listed companies has shown that they expect only a slight decrease in M&A activity on the Belgian market and a shift from diversification towards a focus on the core business.

IPOs and other transactions are expected to increase, especially in the consolidating bank sector, the transforming energy sector and the growing biotech industry. Other sectors that are expected to increase are the hotel and real estate sectors and the strong family-run businesses, particularly with the lack of large interna¬tional deals.

Mid-market activity is expected to remain stable, while some larger private equity deals will have to be put on hold due to tightened lending conditions.

However, the expectation is that M&A will pick up in 2010 as the Belgian market offers a lot of interesting opportunities. There will be bargain-hunting by well-capitalised buyers, non-core dis¬posals by restructuring companies, and all-stock defensive deals, in some instances government-induced. In any event, it will be much more of a buyer’s market than it was, meaning that prices will be weaker and deals will take longer.

Taken from an interview with Steven De Schrijver, Lorenz Law, Belgium