Add-On Acquisitions and International Interest in the Benelux IT Landscape

Add-On Acquisitions and International Interest in the Benelux IT Landscape

Benelux IT M&A sector witnessed a significant revival in the final quarter of 2023, demonstrating resilience and attracting attention from private equity investors. Despite a global backdrop of economic uncertainties and investment downturns in various sectors, the IT market in the Benelux has shown a remarkable capacity for growth and stability.

However, sponsors hold on to their assets longer due to a price dislocation in the market, which shifted from a seller’s to a buyer’s market. Plus, the deposit facility rate from the European Central Bank (ECB) doubled over the course of 2023, which increased the cost of debt for sponsors, often forcing them to take on less leverage. This resulted in smaller deals, often in the form of add-ons, which accounted for 47.1% of deal volume, the highest figure in recent years. In the second half of the year, the macro-economic situation stabilised, with central banks in both America and Europe aiming for a ‘soft landing’ by making minor adjustments to stave off a recession.

The sector’s ability to attract such significant attention and investment, especially in a time when other sectors are facing challenges, speaks volumes about its solid fundamentals and the strategic importance of technology-driven businesses in today’s economy. The Benelux IT M&A sector’s performance in the latter half of 2023 not only showcases its resilience but also positions it as a beacon of growth and opportunity for both local and international investors looking towards 2024 and beyond.

The Benelux IT M&A market registered a total of 515 transactions throughout the year. This marks a decrease from the 657 transactions recorded in 2022, a year that, much like its predecessor in 2021 (667 transactions), was characterised by an exceptional surge in deal volume. In fact, deal volume was still 20% higher than pre-2020 levels, exemplifying the resilience of IT and private equity as an asset class despite macroeconomic headwinds.

Capital allocation and fund raising

Despite a decline in the overall number of deals in 2023, the Benelux IT M&A sector continued to attract significant investment interest. The IT sector’s foundation is incredibly strong, rooted in software subscriptions and managed services contracts, which guarantee a steady flow of revenue. This resilience makes the sector less prone to severe downturns, making the sector less susceptible to deep dips.

The fourth quarter emerged as a pivotal time, signalling enduring interest in the IT sector. This period saw a rise in substantial deals and heightened activity from private equity entities in backing new businesses.

An uptick in major deals and investment activities from private equity, venturing into new businesses has been observed. The secondary exit market demonstrated vitality, exemplified by the acquisition of Dataciders, a German data and analytics service provider, by the Dutch private equity firm Rivean Capital from the German private equity firm, Auctus Capital Partners.

2023 was nearly a record year for PE fundraising in Europe in terms of capital raised, standing out as a resilient and surprising data point given the macroeconomic headwinds that generally made capital raising more challenging for sponsors. The year witnessed almost €120 billion in new capital raised across 117 funds, marking the lowest number of new funds in over a decade. A deeper analysis reveals that 54.0% of the capital raised in 2023 was attributed to only five funds, each at least the sixth in their respective fund families. Furthermore, the concentration of capital within megafunds reached an unprecedented high in 2023, as investors gravitated towards experienced managers from established fund houses with proven track records.

Investors from the United States and UK

The Benelux market is currently experiencing an influx of interest from American and British companies and private equity firms, viewing the Netherlands as a pivotal gateway for bolstering or extending their presence within Europe. A case in point is the acquisition by ECI Software Solutions, a US-based entity, of Treetop Group from the Dutch investment firm Nedvest towards the end of the previous year. Treetop, which focuses on business software for the construction sector in the Netherlands, comprises a suite of companies including Admicom, Kraan, Technosoft, TreeICT (previously known as Herke ICT), HomeDNA, and Frank. This move signifies ECI’s inaugural venture into the construction domain outside the American market, a strategy backed by Leonard Green & Partners, and considerably broadens ECI’s reach across Europe. This acquisition follows ECI Software Solutions’ 2019 acquisition of Trivest Software Group from Nedvest Capital, encompassing eight collaborative enterprises dedicated to delivering software solutions and services across the manufacturing sector, both in the Benelux region and globally.

Highlighting the Benelux market’s appeal to international investors, Expedition Growth Capital, a British investment firm, showcased its confidence in the Netherlands by investing twenty million euros in Rentman during early December. Rentman, a Utrecht-based scale-up, offers innovative Software-as-a-Service (SaaS) solutions for organising resources and staff in the event and media production sectors. This financial backing from Expedition Growth Capital is aimed at fuelling Rentman’s growth ambitions, with a specific focus on penetrating the US market, marking another significant step towards the global expansion of Benelux technological enterprises.

Add-ons and Niche verticals

The year 2023 stood out for its focus on add-on acquisitions, a strategy that continues to gain traction within the tech industry. This approach involves follow-on acquisitions aimed at bolstering an existing tech platform. An example of this approach is Sogelink, a French company providing software solutions for the infrastructure, construction, and real estate management sectors. Initially, in 2019, Sogelink attracted investment from French investor Keensight Capital, which aimed to expand the platform’s international presence through strategic acquisitions. This expansion strategy led to the acquisition of Dutch firms Locatiqs in April 2022 and Regeldienst in October 2023. Furthermore, in November 2023, Sogelink secured an investment from Luxembourg’s CVC Capital Partners, further solidifying its capital base and supporting its growth trajectory.

Another example of successful add-on acquisition is the merger of Test Automation Group, comprising DeTesters, TestCoders, and TechChamps, with an existing conglomerate of test specialists including Bartosz, PTwee, and Squerist, collectively known as TestingCo. This integration was propelled by investment from Exponent, which had previously invested in TestingCo, showcasing a strategic move to strengthen the group’s offerings in the testing domain. The transaction, which marked a significant consolidation in the testing services sector, was facilitated by financial advisory firm CFI, representing Test Automation Group.

The fourth quarter further highlighted the dynamism within the IT deals landscape, with software sector transactions drawing particular interest. One such transaction involved the sale of Memorix, a division of Picturae specialising in software for heritage and collection management, to the Swedish Vitec Software Group. This deal, in which CFI advised Picturae’s investor, Karmijn Kapitaal, illustrates the ongoing interest in specialised niches with societal impacts.

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