Driving forces and challenges in M&A & project financing: Perspectives from Caroline Hoste

Photography: Vincent Gorissen

This article provides insights from Caroline Hoste, a finance lawyer at DLA Piper, regarding current financing trends in Belgian mergers and acquisitions, emphasizing the impact of ESG considerations and digitalization on the future of financing.

• The Belgian M&A financing market currently lacks dynamism, with investors exercising caution amidst expectations of interest rate cuts. Traditional financing methods with Belgian banks still prevail, although private debt funds occasionally participate.

• Combining bank and private debt financing is becoming more common, especially in deals involving private equity players seeking diverse funding sources.

• The financing landscape is evolving, with a growing focus on ESG factors and digitalization. Sustainability-linked loans and green financing are gaining traction, driven by European regulations. Digitalization is streamlining processes, such as document signing, reducing stress associated with traditional closing meetings.

Caroline Hoste has been working for about 18 years as a lawyer. She started her career as a finance lawyer in a Belgian independent law firm but continued her traineeship at an international magic circle firm, with a focus on leveraged finance. After her traineeship, she moved to DLA Piper where she worked for approximately 8 years, focusing mainly on project finance and leveraged finance.

After 10 years working as a lawyer, she spent 2 years working in-house at Jan De Nul Group, a Belgian dredging, construction and offshore wind company operating globally. She has worked there on various Belgian and international projects ranging from offshore wind projects to construction projects. Working inhouse has been a tremendous experience for her to learn how large corporates work and have led to her pragmatic and solution driven approach.

After working for Jan De Nul Group, she returned to private practice at and independent Belgian law firm for 4 years before being offered a partner position back at DLA Piper in their International Finance department. Throughout her career, she has gained a broad variety of experience by working on leveraged finance transactions, particularly in the real estate sector, worked on offshore wind projects, assisted with acquisitions, and embraced the variety of tasks involved in legal work, from data rooms to on-site inspections.

Caroline Hoste's assignment at DLA Piper was to lead and further build the Belgian Finance team. She successfully expanded the team to six members, including herself as a partner, two counsels, one mid-level, and two juniors. The team handles various types of debt finance, such as leveraged finance, acquisition financing, real estate finance, export finance, and project finance (including energy and infrastructure projects, sometimes involving public-private partnerships),.

Recent acquisition financing transactions include supporting Cegeka with the financing of their acquisition of CTG and advising the Van Reusel family, who bought back from Apheon the majority stake in their company Beltaste.

Current developments in financing in the Belgian market
Caroline Hoste discusses the current landscape of M&A financing in the Belgian market. She notes that it is not a booming market at the moment, with investors, both private debt investors and banks, being cautious about where they invest. “We see that everyone is waiting for expected interest rate cuts that have yet to materialise”, Caroline says. “The typical M&A financing round varies across industries. In Belgium itself, we still often see traditional financing with club deals with Belgian banks, although private debt funds occasionally participate but rarely as single lender.”

Hoste mentions instances where private equity firms solely invest in projects, with banks providing a super senior facility alongside. She highlights the trend of combining bank and private debt financing in deals, which is becoming more common however is less established in the Belgian market as you see for example in the Netherlands. Especially in acquisitions involving private equity players who tend to optimize returns through modelling and seeking various sources of funds.

Financing energy and infrastructure projects and M&A deals
One of Caroline’s specialties is project finance in the energy and infrastructure sector. She highlights that there is a big difference in the acquisition of an energy or infrastructure project compared to other M&A deals. If it concerns the take-over of a project that usually means the take-over of the SPV in which the project is vested. Such projects involve multiple parties, from engineering parties, to operating parties, maintenance parties and off-takers, as the case may be.

The underlying regulatory framework and underlying project documents - such as EPC contracts, O&M contracts, PPA's etc. - are of utmost importance to determine the steady cash flow of the project. Consortia that will develop the project either seek investors from the start of the project, meaning before construction, or in other instances investors are sought after the construction phase. She notes that such investors are often insurance companies or energy and infrastructure funds. They either invest by taking over part of the shares or by for example buying the receivables over the project income. “The timing of such investments can often depend on project documentation restrictions, especially in public-private partnership (PPP) projects.”

Assessing the feasibility and risks
The aim of the due diligence in these projects is to understand potential risks that could affect the project's viability and the investor's ability to recoup their investment. For energy projects, Power Purchase Agreements (PPAs) are crucial, while for Public-Private Partnership (PPP) infrastructure projects in Belgium, the focus is on availability payments from the government.

Due diligence evaluates the certainty of these payments and any associated conditions, such as infrastructure failures impacting payments. The reputation of involved parties, such as contractors, is also important in infrastructure projects. Overall, due diligence helps investors and financiers assess the risks associated with investing in a project and understand potential scenarios where the investment may not be recouped.

A difference between financing other M&A deals and assessing the risks and feasibility in energy and infrastructure projects is that more emphasis is placed on technical and insurance due diligence. Caroline: “Financing is based mainly on project revenue where for a regular acquisition finance this is more based on a mixture of cash flow of the business and the value of the assets. Different types of due diligence, including legal, technical, and insurance, are crucial in structuring this financing.”

Outlook on the future of financing
Finally, Caroline Hoste discusses the evolving landscape of financing for mergers and acquisitions, particularly in light of emerging trends and regulatory changes. She highlights the increasing focus on ESG (Environmental, Social, and Governance) factors, with a significant portion of transactions now incorporating ESG aspects. This includes green loans for environmentally friendly projects and sustainability-linked loans, where financing terms are tied to key performance indicators (KPIs).

Banks, driven by European regulations, are particularly active in ESG financing, with specialized teams collaborating with companies to identify future improvements. Hoste also mentions the significant impact of digitalization, which has revolutionized the process of contract drafting and document signing and reduced – to a certain extent – the stress of traditional closing meetings.

“I think that is an evolution due to the digitization of document signing”, concludes Caroline. “In the past, it would not have been unusual that before a closing we were often late at night preparing all those packages of documents after final negotiations which had to be signed and initialled by multiple parties which took place during long closing meetings. Now it is often all done electronically. That's less stressful, even though the traditional closing meetings did have their charm.”