Why this study?
This study assesses, at the beginning o 2013,
how do small and middle-market private-equity(PE) deals in Belgium get fnanced and which uture changes can be expected.
There is ongoing talk on how the prolonged credit and sovereign crisis is changing the wayEuropean leveraged buyouts (LBOs) get nanced. Due to stricter Basel III regulation and a gen-eral deleveraging trend, European banks are expected to reduce their balance sheets with EUR 2-3trillion post-crisis.
As a result, banks have been reducing debt exposure across most lending cat-egories, including private equity-backed companies.
Current collateralized loan obligation (CLO)unds, which were mainly raised in 2006-2007 with seven-year investment periods, are still activein the market or mid-market and large deals. However, they are expected to wind down in thenext years with only one new European CLO launched since 2008 by March 2013.
On the non-banknancing side, several credit unds have launched vehicles to step in a possible European lend-ing gap.
Corporate bond issuances, including high-yield bonds, have also been on the rise in end2012-early 2013, partly replacing bank-loan nancing. However, public bond issuances are mainlyrenancings or larger issuers and come less to the benet o acquisition nance o small and mid-dle-market deals.
While it is uncertain how the specics will play out, the
traditional bank-basedmodel o European LBO fnancing will continue to be challenged.
While the Belgian LBO debt market is only a raction o the European market, it is a particularlyinteresting case. The Belgian banking market has historically been exceptionally large (bank assetswere ca. 470% o GDP in 2006 versus Euro-area average o ca. 250%) and strongly concentrated(top 4 banks represented ca. 80% o the market in 2006). What’s more, all major banks underwentimportant changes over the past years: Fortis was integrated in the French BNP Paribas bank andsplit o its insurance activities, Dexia got nationalized and reocused its activities as Belus, KBCgot bailed out and reocused on retail and small-business customers, ING split its insurance and banking activities but retains commercial banking as a core activity.
In this context, Belgium is aninteresting case to assess what happens with the fnancing o small and middle-market LBOs ina historically bank-dominant market that undergoes major change.