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Oaklins PE Newsletter Oct2020.Pdf Navigating through the cycle PRIVATE EQUITY NEWSLETTER, THE NETHERLANDS | Q3 2020 “In the past decade the private equity (PE) and M&A UPDATE (pg.2) Deal flow in the Netherlands decreased dramatically related industries have experienced a tailwind in Q2 on the back of COVID-19, but Q3 shows there is like never before. The outbreak of COVID-19 once again an upward trend. drastically changed the direction of the wind, DEBT UPDATE (pg.6) and portfolio companies suddenly needed their Leverage multiples maintain their levels in these support to cope with the new environment. turbulent times, though pricing shows a step-up. SECTOR IN THE SPOTLIGHT: MEDTECH (pg.10) Now that the dust has settled, investment Software and related technology companies dealing managers are starting to look for deals again. in healthcare are in high demand. And with the abundance of capital available and many sectors still performing strongly, deal ABOUT OAKLINS (pg.14) Our newly published market-intelligence reports can flow and valuations do not seem to be hit as give you the best insights into your sectors of interest. hard as was seen in 2008. The impact of the pandemic on the Dutch M&A landscape has, however, been quite different from other countries, as can be read on the next pages.” FRANK DE HEK PRIVATE EQUITY SPECIALIST OAKLINS M&A update M&A ACTIVITY IN Numbers of deals in the Netherlands THE NETHERLANDS 304 310 308 295 The M&A deal flow has been 288 293 278 261 relatively stable in recent years. 103 90 241 107 95 81 79 But the COVID-19 crisis is radically 91 60 211 79 changing the landscape. 162 48 43 Between Q1 2018 and Q1 2020, M&A 197 207 218 193 214 214 201 187 162 163 activity in the Netherlands has been 119 relatively stable, with approximately 100 deals per month. This changed 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 dramatically, when the pandemic hit. The deal flow in Q2 2020 decreased by PE Strategic approximately 30% compared to Q1 2020, with an average of about 54 deals per S&P Global Market Intelligence, Mergermarket, Alex van Groningen, Oaklins research month. Q3 shows a slight recovery with a total of 211 closed transactions, averaging 70 deals per month. Deals per size category in the Netherlands The Dutch M&A market was hit harder 17% 15% 15% 19% than the global mean, where deal flow 20% 25% 21% 19% 19% 24% 20% dropped by about 25% in the period from March to June. This, among other factors, 1Q18 2Q18 3Q18 4Q18 1Q19 64% 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 is the result of measures taken by local 60% 63% 62% 64% 55% 61% 63% 60% 64% 67% debt providers, as will be touched upon 197 207 218 193 214 214 187 201 162 119 163 further on in this document. 107 103 90 95 81 79 91 60 79 43 48 304 310 308 288 295 293 278 261 241 162 211 When looking at the deal size categories, the number of deals below €5 million EV 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 shows a declining trend during 2018 and < 5 million 50–100 million 250–500 million 2019 as a result of improved company 5–50 million 100–250 million > 500 million performance and higher valuations, among other reasons. As is typical during a crisis, the deal flow of small Source: S&P Global Market Intelligence, Mergermarket, Alex van Groningen, Oaklins research transactions is not hit as hard as their larger equivalents, thereby increasing market share. Nevertheless, closed deals Deal breakdown per industry in the Netherlands in the Netherlands are still dominated by 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 deals with an EV of between< 5 million €5 million 204% 1% 25 21 19 19 17 15 15 24 20 19 and €50 million, which 5–50still represent million 6% 64 55 61 60 63 63 62 64 60 64 67 TMT circa 67% of total Q3 deal50 flow. –100 Thismillion is 3% 7 8 10 9 8 5 6 6 8 5 8 31% Business Services independent of whether the deal involves 5% 100–250 million 3 5 5 Industrials6 & Construction5 7 9 8 4 6 3 PE or strategic buyers. 250–500 million 3 3 1 Food2 & Agriculture 2 4 3 3 0 2 0 > 500 million 2 4 2 Healthcare3 2 3 4 5 3 4 3 In the Netherlands, the distribution 10% Financial Services of deals by sector has not changed Energy much in the past five years.. During the Consumer Goods coronavirus crisis, however, the relative 9% Leisure activity in the TMT and food sectors 16% Other (sectors positively correlated to the COVID-19 crisis) increased, where all 15% other sectors experienced decreased activity. Source: S&P Global Market Intelligence, Mergermarket, Alex van Groningen, Oaklins research 2 OAKLINS – Private Equity newsletter | Q3 2020 M&A update VALUATIONS PARAMETERS European EV/EBITDA multiples (LTM medians) OF EUROPEAN DEALS 12 Valuations of European M&A 11 transactions have been increasing 10 9.2x steadily over the past decade. But 9 different forces have had a diverse 8 impact on the multiples paid this 7 year. 6 2006 2008 2010 2012 2014 2016 2018 2020 In Q2, when COVID-19 severely Source: S&P Global - Capital IQ impacted Europe, it came as a surprise that the paid median LTM EBITDA European EV/EBITDA multiples per buyer category (LTM medians) multiple increased by circa 0.3x compared to Q1, to 9.9x. Looking at the 12 11.3x figures in more detail shows that this 11 was the result of a changing sector mix, 10 with relatively more transactions taking 9 8.8x place in sectors that are characterized 8 by high multiples, such as healthcare 7 and TMT. In addition, during Q2, 6 transaction processes of companies hit 2006 2008 2010 2012 2014 2016 2018 2020 harder by the coronavirus were put on PE (backed) buyer Strategic buyer hold. In contrast, premium assets, with less or no COVID impact, proceeded Source: S&P Global - Capital IQ, Oaklins research to closing. These deals were closed Quarter 4Q2004 1Q2005 2Q2005 3Q2005 4Q2005 1Q2006 2Q2006 3Q2006 4Q2006 1Q2007 2Q2007 3Q2007 4Q2007 1Q2008 2Q2008 3Q2008 4Q2008 1Q2009 2Q2009 3Q2009 4Q2009 1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 4Q2012 1Q2013 2Q2013 3Q2013 4Q2013 1Q2014 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017 2Q2017 3Q2017 4Q2017 1Q2018 2Q2018 3Q2018 4Q2018 1Q2019 2Q2019 3Q2019 4Q2019 1Q2020 2Q2020 3Q2020 based on terms agreed upon in the European EV/EBITDA multiples per size category (LTM medians) pre-COVID-19 environment, resultingRolling LTM EV/ in relatively higher multiples of closed 16 8.49 8.77 8.95 9.47 9.18 9.40 9.80 10.16 10.50 10.65 11.09 11.21 11.58 11.53 11.10 10.78 9.68 9.20 8.60 7.87 8.33 8.36 8.34 8.66 8.96 8.96 9.39 9.49 9.19 9.33 8.99 8.44 8.67 8.48 8.74 8.58 9.00 9.15 9.00 9.60 9.26 9.50 9.64 9.80 10.00 9.59 9.67 9.30 9.34 9.43 9.66 9.99 9.88 9.79 9.77 9.88 10.08 10.33 10.10 10.13 9.88 9.67 9.92 9.23 deals in this period. EBITDA 14 multiple 13.2x 12 Compared to Q2, Q3 shows an opposite 11.6x trend, with a median LTM EBITDA 10 9.5x multiple of 9.2x, showing a decrease 8 of 0.7x. The largest driver of this 6 6.4x decrease was the high share of smaller 4 transactions, with LTM EBITDA multiples 2006 2008 2010 2012 2014 2016 2018 2020 of transactions below €5 million EV being 6.4x, and transactions north of Quarter 4Q2004 >5 1Q2005 5–502Q2005 50–5003Q2005 4Q2005>500 1Q2006 2Q2006 3Q2006 4Q2006 1Q2007 2Q2007 3Q2007 4Q2007 1Q2008 2Q2008 3Q2008 4Q2008 1Q2009 2Q2009 3Q2009 4Q2009 1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 4Q2012 1Q2013 2Q2013 3Q2013 4Q2013 1Q2014 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017 2Q2017 3Q2017 4Q2017 1Q2018 2Q2018 3Q2018 4Q2018 1Q2019 2Q2019 3Q2019 4Q2019 1Q2020 2Q2020 3Q2020 €500 million EV trading at 13.2x LTMRolling EBITDA. LTM EV/ Source: S&P Global - Capital IQ, Oaklins research EBITDA 8.05 8.24 8.77 8.76 8.78 9.76 10.01 10.16 10.49 10.24 10.925 10.925 11.01 11.045 10.47 10.5 9.98 9.71 9.9 8.06 8.06 8.3 7.69 7.27 8.735 8.74 9.65 10.13 9.55 9.23 8.175 7.5 8.08 8.37 8.63 8.63 8.63 8.9 8.945 9.4 9.21 9.47 9.505 9.6 10.21 9.455 9.085 8.845 9.055 8.8 9.33 9.41 9.35 10.71 10.36 10.14 9.98 9.385 9.12 8.87 10.28 10.11 11.27 11.35 Interestingly, when looking at the datamultiple European EV/EBITDA multiples per sector (LTM medians) of prices that strategic and PE (and PE PE-backed) buyers pay, a strong shiftRolling Sector 4Q19 1Q20 2Q20 3Q20 can be seen over the past 12 months.
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