A small geographical market and linguistic and institutional complexities actually encourage openness and agility on the international business front. Interview of Gabriel Englebert, BNP Paribas Fortis.

The Merger and Acquisition (“M&A”) market in Belgium has been growing steadily since 2016, as the Vlerick Business School’s most recent M&A Monitor can attest. Our companies are once again showing their desire in 2018 to expand in Europe and even beyond. Gabriel Englebert, Head of Corporate Finance: « It’s not all about the BEL 20 companies, I assure you. I’m proud to confirm that the companies looking for acquisitions are among the top 300 Belgian firms ».

Looking beyond Belgium at a very early stage

In a narrow national market, made up of different regions and languages, our companies sometimes have to start exporting at a very early stage of their development. As a result, Belgian companies are natural exporters with a decentralised culture that is extremely favourable to M&A. Belgian companies have solid shareholders and management teams that are often multilingual, highly educated and able to recruit international profiles. Our country is also an ideal territory for niche sectors such as life sciences and healthcare, agri-food, aerospace, industry, building materials, services, consumer goods and technology.

High valuations

"It’s not so much the absolute deal size that strikes me, but the valuation levels. Valuation levels are high, with rising EV/EBITDA multiples."
Gabriel Englebert.

A combination of factors can explain such high valuations: the scarcity of opportunities, the amount of cash available and the low interest rate environment.  "Current EV/EBITDA multiples can hit very high levels well above 10x. Those are big numbers for only the very best companies in the market!"

Exploring new countries, new activities and technologies

Building on their success, Belgian companies are ready to invest in foreign target companies to gain new market access or knowledge of a country, or to test an adjacent product or service. In a third of all M&A deals, the target is a foreign one. On average, these transactions take six to twelve months to complete – the time needed to negotiate the price and terms, conduct due diligences and clear regulatory approvals, taking account all the while of cultural differences, that can be substantial in some cases.

Gabriel Englebert: « Lastly, I would pinpoint two trends for 2018 among the big Belgian groups: the pursuit of innovation – in many cases a specific technology or know-how – and continued investments in the field of sustainability. ».

The M&A market is changing, we need to be innovative

The traditional auction process involving a very large number of potential buyers, used to dominate the market in the past. This type of very standardised process was sometimes contrary to the desire for discretion of our Belgian clients, who favour highly discrete transactions.

Belgian business leaders do not expect the same from their investment banker in 2018 as they did in the past. Gabriel Englebert: « We are in a world of bespoke processes and tailor-made solutions, and I am absolutely delighted about that! Our ‘made-to-measure’ approach is perfectly suited to our bank, which nurtures long-term relationships with our clients. Our teams use their know-how to articulate in-depth solutions. It means, for instance, that we do not disclose all our recent transactions, even though they are very large in number and in quality. Our business is all about discretion and pure trust. »

What’s the investment banking business model in 2018?

We help and coach business leaders making the right decision in complex, life-changing merger and acquisition transactions, of which some are industry-transformational. Is artificial intelligence set to revolutionise our core business? Gabriel Englebert: « Not in my view. Why would a business leader still need us in 2018? The answer is that we completely trust our ability to offer effective but nuanced judgement regarding many complex M&A situations ».

Backed up by their internal experts, business leaders have massive amounts of information and analysis tools available, together with unlimited data available on the web and consultants’ reports on specific fields. But there is actually too much information out there these days and that can result in confusion. In this context of information obesity, we make a real difference in terms of tactical advice and decision-making timing. A profession like ours, which is founded on intangible factors like trust and confidentiality, demands dedication at every moment. Gabriel Englebert: « As for me, I have already made my choice: I am happy to jump on a plane if a client across the Atlantic needs my advice on a complex transaction ».

Timing in M&A: the key to success

Gabriel Englebert: « Our clients’ interests are our absolute priority. We’ll finalize the transaction in less than three months, if that’s what the parties want ». Other elements are sometimes at stake too, such as business succession or the transfer of shareholdings. Consulting your investment banker about family governance can also bring some helpful neutrality to the thinking process.

What about the future?

Gabriel Englebert: « I would pick out two structural factors: (1) The M&A market, which I believe is to stabilise. Central Banks intend to raise interest rates progressively, which can decisively reshape stock market valuations. (2) The profession: the investment banking model will evolve again: in five or ten years’ time, a new generation will pick up the profession that is fantastic on both human and professional terms. M&A ‘advisory boutiques’ are flourishing but a natural selection will be unavoidable and some will disappear. But we’ve been around for 200 years now and I expect us to be here for a lot more years to come ».

BNP Paribas Fortis is ready for the mobility of tomorrow. And Laurent Loncke, General Manager Retail Banking and member of the bank’s management committee confirms this when he says “We do much more than lease electric vehicles”.

How can companies leverage mobility as part of their transition?

"If we look at vehicle usage alone, switching from fossil fuels to electric energy can reduce CO₂ emissions by a factor of four. This transition is being encouraged in our country more than ever by tax incentives and tax breaks. From 2035, the European Union will also ban the sale of cars with combustion engines. Whether it’s for the company fleet or company cars for employees, electric driving is the way forward, alongside other forms of mobility."

Are all businesses aware of this?

"These days, two out of every three new vehicles are company cars. And 80% of those orders are electric vehicles, a trend that is also apparent at our partner Arval."

So companies are playing a pioneering role in this transition?

"Certainly. First and foremost because former company cars find their way to the second-hand market at some point, making electric driving more accessible for everyone. Secondly, by choosing an electric car, you can encourage your friends and family to follow your example. Our recent Profacts survey (only in Dutch and French) showed that 85% of electric vehicle owners are satisfied to very satisfied that they switched to an electric vehicle. However, 42% of Belgians are still reluctant. Half of them are worried their battery will run out before they can get to a charging point."

Is their fear justified?

"Not really. Most drivers only feel comfortable with a range of 500 kilometres, even if they only drive a few dozen kilometres a day. It’s true the charging network does need to be developed further. Many people, especially those living in cities, cannot install a charging point at home. BNP Paribas Fortis is contributing to the expansion of the charging network through its participation in Optimile. This Ghent scale-up offers software solutions for charging electric cars and is developing strategic partnerships for the installation and maintenance of charging points."

Can an electric car be part of each employee’s remuneration package?

"Today, there are already less expensive vehicles on the market, making electric driving an option for middle and lower-management. The Total Cost of Ownership of an electric car is the most important factor, however. And this is still much lower than that of a vehicle with a combustion engine. Leasing is often the best solution. We have a comprehensive, tailor-made offering for all companies, regardless of their size and needs."

What exactly do you mean by a 'comprehensive offering'?

“In addition to leasing, we are able to offer charging solutions at home or at work, a charging card for public networks, the automatic reimbursement of electricity consumption at home, an app to find charging stations, and electric driving training through our many partners.”

So a complete ecosystem?

"We want to contribute to the mobility of tomorrow. By financing it, through credits or leasing, and with insurance, but also by working with partners outside our traditional activities. Like Optimile, and Touring, an organisation that is synonymous with reliability."

But mobility isn't just about cars, is it?

"We believe we need to rethink our relationship with the car. Given the climate targets and the increasing scarcity of resources, it is simply not possible to replace every internal combustion engine with an electric car at the moment. Arval offers its extensive expertise to companies considering a different approach to mobility. We help them analyse their needs, propose alternatives to the car, establish a mobility budget or draw up a mobility policy. We offer bicycle leasing, sometimes in combination with car leasing. We strongly believe in multimodality and mobility-as-a-service solutions: the option to combine different transport modes and pay for them without too much hassle. This is also one of the specialities of our partner Optimile."

Are companies and their employees open to this idea?

"The idea of employees no longer saying 'I have this amount for my car in my salary package', but rather 'I have this amount for my mobility'  is gaining traction. People are already paying for use rather than ownership in gyms or for streaming services. Mobility is going down the same route, with car-sharing and flat-rate subscriptions, making costs more predictable for businesses and private individuals. But the pace of change will also depend on the success of the federal mobility budget. For now, uptake is slow."

 

BNP Paribas Fortis SA/NV – Montagne du Parc/Warandeberg 3 – 1000 Brussels – VAT BE 0403.199.702 – RPM/RPR Brussels

Optimile SA/NV – Sassevaartstraat 46 bus 204, 9000 Ghent – RPM/RPR Ghent – VAT BE 0648.837.849 – www.optimile.eu – BNP Paribas Fortis SA/NV holds a greater than 10% stake in Optimile SA/NV.

Arval Belgium NV, Ikaroslaan 99, 1930 Zaventem – Brussels Register of Companies – VAT BE 0436.781.102.

Touring SA/NV, Koning Albert II-laan/Avenue Roi Albert II 4 B12, 1000 Brussels – Brussels Register of Companies – VAT BE 0403.471.401, is registered under this number with the FSMA, Rue du Congrès/Congresstraat 12-14, B-1000 Brussels, and acts as an associated agent on commission for AG Insurance SA/NV. AG Insurance SA/NV owns a greater than 10% stake in Touring SA/NV.

Belgium’s three regions provide a range of grants for companies and self-employed people making investments. Our experts can help you make sense of the situation and submit your application.

The terms and amounts of investment grants vary greatly from one region to another. The applicable rules depend on the location of the operational entity making the investments. The company’s registered office is not relevant and can be located in any country. You should also bear in mind that applying for a grant is still a fairly cumbersome administrative process. That’s why our experts take care of all the steps, from submitting the grant application to collecting the grant money.

Flanders: a range of grants

Various types of grants are available in Flanders, the most important of which are support for strategic transformations, the ecology bonus, strategic ecological support, the SME e-wallet and the SME growth subsidy.

Each type of support targets different types of investment and different companies. Subsidy levels also vary widely, from 8% for a strategic investment by a large company to 50% for consultancy fees paid by an SME.

Our experts can help you identify subsidy opportunities and then arrange for you to meet a specialist from VLAIO, the Flemish Agency for Innovation and Entrepreneurship, who will then help you with the rest of your application.

Wallonia: traditional and ecological aid

In Wallonia, investment grants are reserved for companies operating in a limited number of eligible sectors. Excluded activities include retail, transport and the liberal professions.

The terms and conditions also differ according to the size of the company. Small businesses must invest a minimum of €25,000. Large companies need to reach higher thresholds and invest in a development zone.

Examples of eligible business investments include buying/building a property, buying land and buying new business equipment.

The basic grant varies from 4% to 6%, but can be higher if the applicant creates jobs, takes an innovative approach or diversifies abroad, for example. A larger grant, up to 20%, may be obtained for projects that promote the sustainable use of energy and environmental protection.

Please note that it is essential to submit the request before any firm investment commitment is made: investments for which you have already accepted a quote can no longer be subsidised.

Our experts can guide your company through the entire process.

Brussels: the most generous

The Brussels subsidy for investments in goods, property or works is open to most sectors. In total, around 80% of the capital's economic activities are eligible for grants. The two main exceptions are education and real estate.

To qualify for a grant, the investment project must be worth at least €10,000 for a start-up business and at least €15,000 in other cases, depending on the size of the business. In addition, it must aim to develop or improve an existing activity: simple replacement expenditure does not qualify.

The aid can amount to up to 30% of the investment, although the average is 12.5%. The level of subsidy depends on a number of criteria, such as whether the company is a start-up and whether the investment will increase the number of people employed by more than 30%.

Over the course of 2024, reforms to the aid system will increase incentives for sustainable and circular economy projects.

Please note that it is essential to submit the request before any firm investment commitment is made: investments for which you have already accepted a quote can no longer be subsidised.

Our experts can guide your company through the entire process.

A young Belgian company that installs biogas facilities on farms is growing fast. Here’s how BNP Paribas Fortis is helping its development.

Biolectric is the epitome of the sustainable do-economy: it manufactures and sells anaerobic digesters, which are installed on farms so as to produce ‘green’ energy based on the biogas released from the farm’s own manure.  The green heat and power generated from cow dung make the farm an energy-positive business.  No less important is the fact that this approach reduces emissions of the powerful greenhouse gas methane by up to 70%. The average Biolectric reduces greenhouse gas emission by an equivalent of 2.000 kilometers driven in an modern car.

The company, which started up in 2011 in the East Flanders municipality of Temse as a typical scale-up, nowadays sells anaerobic digesters to farmers all over Europe.

Biolectric is a fast-growing company. In 2019, in order enable further growth, the bank provided the firm with a series of credit facilities, mostly in the form of a ‘sustainable impact loan’.

Sustainability policy

Tom De Winter is Biolectric’s contact at BNP Paribas Fortis. He tells us: “The bank has been working with Biolectric since the very beginning, but the relationship has become much closer since 2017. In order to obtain a better grasp of their technology, I’ve visited the firm several times with expert from our Sustainable Business Competence Centre. It’s very important to be able to understand and evaluate the firm’s technical proposition. When Biolectric founder Philippe Jans and industrial investment company Ackermans & van Haaren (AvH) came to talk to us last year about the imminent onboarding of the company by AvH, and the subsequent creation of a new low-threshold business segment, namely the construction of a facility with its own anaerobic digesters so as to be able to sell electricity to farmers in Belgium, the Netherlands and France, we knew straight away that we ought to go along with them on the project.”

“We weren’t the only bank in the running, but the client had clearly chosen us. The coordinated approach of BNP Paribas Fortis and our clear policy of backing sustainable solutions played a big part in that decision,” explains Tom De Winter.

Biolectric

As a pioneer, Biolectric has independently developed compact anaerobic digesters, known as ‘pocket digesters’, specifically designed to turn cattle dung into electricity and heat. Today there are over 200 of the company’s installations operating all over the world. This technology provides Biolectric farmers with a very nice economical as well as ecological return on their investment.

In 2019 Ackermans & van Haaren, which is also a BNP Paribas Fortis client, acquired a 60% stake in the company from Taste Invest, with founder Philippe Jans retaining the remaining 40%. AvH brings its professional management experience to Biolectric, thus strongly boosting the firm’s growth potential.

The coronavirus crisis prompted the Belgian Treasury to issue additional debt securities. In just a few days, BNP Paribas Fortis and four other Primary Dealers launched a new government bond on the institutional investment market.

Treasury certificates and government bonds (known as OLOs) are an important source of financing for the Belgian State. They offer investors the possibility to lend money to the country in exchange for periodic interest. At the end of December last year, the Treasury assumed it would have to issue debt securities worth €30 billion in 2020. That would happen via an increase in the number of existing bonds, and through two new OLO transactions.

The corona crisis increased the country’s financial needs significantly. So, at the end of March, the Federal Debt Agency decided to issue additional tenders for the OLOs in circulation. It also immediately halted the repurchase of certain bonds, and raised the issuance target for Treasury certificates.

New OLO

An additional measure was the issue of a third new government bond: OLO91. “This is a medium-term loan,” says Jean Deboutte, director of the Treasury. “The maturation date is 22 October 2027. With a zero-percent coupon, this bond is neutral for our annual budget.

“We wanted to bring OLO91 to market as quickly as possible. That has happened in a period of just a few days. It is also the largest ever OLO issue: €8 billion. We have attracted investors from 31 different countries, and around one-fifth of the volume comes from non-European buyers. That confirms the worldwide popularity of Belgian government bonds.”

Primary Dealer

The fast launch of OLO91 is in part thanks to BNP Paribas Fortis. “As a Primary Dealer, we take care of the placement and promotion of the bond among institutional investors,” says Director Debt Capital Markets Stefaan Van Langendonck. “We also reinforce activity and generate liquidity of OLOs and treasury certificates on the secondary market.”

Belgium has 12 primary dealers. They drew up a contract with the Treasury based on the Code of Duties. “BNP Paribas Fortis can rightly consider itself one of the most important intermediaries for Belgian bonds,” says Mr Van Langendonck. “Each year, we are invariably among the top three most active Primary Dealers in the country. Often we are number one.”