Insights from PwC Belgium's private equity leaders.
In an ever-evolving economic landscape marked by geopolitical tensions, regulatory shifts, and fluctuating financial markets, the Belgian private equity sector faces unprecedented challenges, but also promising opportunities.
To shed light on these dynamics, MandA.be sat down with three key figures from PwC Belgium: Philippe Estas, Partner & Private Equity Lead; Christoph Dochy, Specialist in Debt & Capital Advisory; and Jolien Van Landeghem, M&A Tax Director.
Their collective expertise provides a comprehensive view of the current state and future prospects of private equity in Belgium.
Operating like a soccer team
Philippe Estas plays a pivotal role in steering PwC Belgium's private equity practice towards global excellence. "My role involves elevating our practice to match the best in the world, particularly those in the US and the UK – countries recognized as leaders in private equity", he explains.
Drawing parallels to a soccer team, Estas emphasizes the importance of assembling the right team based on the deal's complexity and scope. "We operate like a soccer team, assembling the right players based on the complexity and scope of the deal to deliver the best results for our clients. That’s our goal – to win every match for our clients."
Emotional intelligence is key
When asked about the biggest challenge in attaining ever higher levels of excellence for their private equity practice, Philippe Estas identifies people as the key factor. "Attracting the right talent, mentoring them throughout their careers, retaining them, and providing them with new opportunities and responsibilities, that is our biggest challenge", he says.
Estas notes that success in private equity transcends technical expertise and he points to the role of emotional intelligence as especially critical. "You need it to work effectively with management teams, investors, bankers, and your own team members. Those who focus solely on the technical aspects often struggle to build a successful career here."
Philippe Estas
Current challenges in Belgian private equity
The private equity (PE) market is currently navigating a complex and evolving landscape. "Over the past few years, limited partners (LPs) have heavily invested in PE, resulting in substantial 'dry powder' which is waiting to be deployed", says Philippe Estas.
This surplus, estimated in the trillions globally, puts pressure on firms to diversify beyond traditional leveraged buyouts into areas like infrastructure, real estate, and credit. At the same time there’s been a decline in demand for private equity investments, particularly from business owners looking to sell their companies. “Private equity is often a solution for family businesses seeking succession plans or corporations looking to reorganize their portfolios by divesting non-core activities”, Estas explains. “However, a significant challenge arises in aligning the expectations between sellers’ asking prices and buyers’ valuations.”
This brings the conversation to valuation, a key challenge in today’s environment. “Predicting future cash flows has become more uncertain due to market instability, and determining the appropriate weighted average cost of capital (WACC) for discounting those cash flows is increasingly difficult”, according to Estas.
"Uncertainties around forecasting future cash flows are significant, and tax policies add another layer of complexity", Jolien Van Landeghem adds. “New taxes, such as energy taxes, impacting EBITDA, and geopolitical shifts such as the increased focus on internal markets and related protective tax measures like import tariffs, further influence long-term strategies and performance. For globally active companies, such shifts can significantly influence long-term strategies and performance.”
"Uncertainties around forecasting future cash flows are significant, and tax policies add another layer of complexity"
The end of the free money cycle
For years, the private equity industry operated in a favourable environment where interest rates were near zero. It was, in many ways, an ideal scenario for leveraged buyouts, as returns were often driven by deleveraging, and banks or private debt funds were offering very high multiples.
“This cycle has come to an end in 2023, which has disrupted the market significantly since then despite a slight reversal in interest rates in the second half of 2024", says Christoph Dochy, a specialist in debt and capital advisory. “Companies and funds that relied heavily on cheap financing now face challenges. For example, private equity funds managing assets acquired at high entry prices are struggling as they near the end of their fund lifecycles. When these funds attempt to exit their investments, they find that buyers are no longer willing to pay the same high multiples due to the new financial realities.”
This misalignment in valuation expectations stems from several factors, including higher financing costs and reduced aggressiveness from banks and credit providers. “Buyers are adjusting to these conditions, and sellers must do the same. While this has caused a slowdown in M&A activity in Belgium over the past year, it’s important to note that the deals that do occur are attracting significant interest from active players due to relative scarcity”, says Dochy.
Christoph Dochy
Financing and tax challenges in a changing environment
The private equity landscape in Belgium has to deal with significant shifts as financing becomes more challenging, yet the experts remain optimistic about its long-term growth potential. "Once we move through the current vintage cycle – where companies acquired under aggressive conditions stabilize – and start making new deals with less aggressive entry multiples, we’ll enter a more normalized environment", explains Christoph Dochy.
Traditional banks in Belgium have proven surprisingly resilient, maintaining stable multiples and margins despite rising base rates. "It’s remarkable how consistent banks have been in supporting companies with strong cash flow, even as they avoid certain high-risk industries", says Dochy.
Private lenders in the Belgian market have become a viable alternative in cases where deals are too large for Belgian banks to manage – typically for aggregate amounts exceeding 100 million euros. For example, in buy-and-build strategies, where companies need to make multiple acquisitions within a short timeframe, private lenders are often more flexible. They can provide the necessary funding by adding incremental debt during the investment journey, something banks may struggle with due to their more rigid structures and lower concentration limits.
However, private lenders like debt funds are feeling the pressure of higher capital costs, creating noticeable shifts in market dynamics. "Debt funds hit cash flow limits faster under today’s conditions, which adds complexity to acquisition structures", notes Dochy.
"Debt funds hit cash flow limits faster under today’s conditions, which adds complexity to acquisition structures"
Also, the current tax framework for private equity funds and managers isn’t particularly friendly, raising questions about whether general partners will stay in the region, observes Philippe Estas. Amid these changes, taxation of sweet equity remains a hot topic. Van Landeghem highlights that the lack of clarity in current legislation creates uncertainty but also presents an opportunity. "If new rules introduce a fixed tax rate that is reasonable and acceptable, it could provide much-needed stability. Despite challenges, the adaptability of financial institutions and the potential for regulatory clarity signal a steady foundation for private equity’s future in Belgium.
Adapting deal structures and strategies
In response to the shifting landscape, private equity firms are innovating their deal-making strategies. Dochy points at the rise of continuation vehicles, which allow funds to postpone full exits until market conditions improve. "This strategy provides funds with more time to create operational improvements and maximize value", he says. These funds allow firms to retain strategic assets they understand well, rather than venturing into entirely new industries or management teams. Additionally, high-quality assets with strong fundamentals continue to command premium valuations, while funds nearing the end of their lifecycles face pressure to sell at lower valuations.
“The current market heavily favours top-tier assets with predictable cash flows, sticky customer bases, and stable geographic footprints in politically secure regions”, says Estas. “These are the assets that consistently attract strong demand. In contrast, less secure or less attractive assets often remain off the market, making it challenging to balance supply and demand dynamics. This divergence has made deal-making more complex, but it underscores the importance of strategic focus and adaptability in navigating today’s private equity landscape."
The resilience of buy-and-build strategies
Christoph Dochy emphasizes the effectiveness of buy-and-build strategies as another key response to current challenges. "The buy-and-build strategy is one of the key responses from Belgian private equity firms to achieve desired returns", he states. Success in this approach requires excellent integration strategies, capable management teams, and the ability to build resilient groups quickly.
Philippe Estas concurs and highlights the crucial role of management teams in executing these strategies. "Private equity firms may provide best practices, insights, and access to networks, but the execution rests squarely on the shoulders of top management teams."
Another strategic shift in private equity is the move from purely financial transactions to operational transformation. "The focus is now on Transact to Transform”, says Estas. “This means driving EBITDA growth through operational improvements, pricing excellence, or product portfolio expansion." This approach, while involving additional risk, leverages arbitrage opportunities to create value. For instance, acquiring smaller assets at lower EBITDA multiples and integrating them into larger platforms can enhance overall valuations.
"The focus is now on Transact to Transform. This means driving EBITDA growth through operational improvements, pricing excellence, or product portfolio expansion."
Van Landeghem adds: "Transforming your business and adapting your business model going forward also needs to be analysed from a tax perspective, certainly in the current environment. Especially in an international context, these changes could give rise to tax leakages, such as withholding tax, additional import duties or other protective tax measures. If not well monitored and structured, these could significantly reduce the operational benefits and synergies.
Jolien Van Landeghem
Navigating regulatory and tax challenges
As if the current macroeconomic and geopolitical situation isn’t complicated enough, the trio acknowledges that increased regulatory pressures across Europe add to the operational burdens of private equity firms. "Compliance costs have risen substantially", Estas notes, citing regulations like FDI, GDPR, KYC, and CSRD.
Van Landeghem points out that tax complexities and new legislation often result in higher compliance burdens rather than higher effective taxes. "New laws, such as those introducing minimum tax, require extensive reporting and calculations, adding complexity and costs to companies."
While compliance costs have increased, private equity firms are leveraging these investments to offer substantial value to their portfolio companies. “Private equity firms bring not just financial resources but also expertise and tools to help companies grow”, says Estas. “They provide guidance on cloud and SAP transformations, share best practices from other investments, and offer a network of connections. This toolkit extends beyond compliance, helping management teams create value and achieve growth that would be difficult to accomplish independently.”
Looking ahead: optimism amid uncertainty
Despite the myriad challenges, the outlook for Belgian private equity remains cautiously optimistic. Christoph Dochy predicts a move towards a more normalized environment once the current vintage cycle stabilizes. "We’re in a stable, albeit cautious, phase", he says. Van Landeghem agrees and emphasizes the need for clear government policies to foster investor confidence.
Philippe Estas remains the most optimistic, confident in the resilience of private equity as an investment class. "Private equity remains a highly resilient investment class. It consistently finds ways to adapt and often does so faster than other sectors", he concludes. “And recent trends suggest a stabilization in valuations and financing conditions. By focusing on talent, embracing strategic innovations, and maintaining operational resilience, private equity firms are well-positioned to adapt and thrive in the years ahead. Private equity is here to stay, and financial institutions are eager to find ways to deploy their capital."
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