NETHERLANDS Trends and Developments Contributed by: Maarten de Boorder, Bas Vletter, Samuel Garcia Nelen and Rutger Sterk, Greenberg Traurig, LLP
cantly increase its military spending, have opened up new avenues for private equity to deploy capital and realise returns for its investors. Energy transition remains a strong driver of M&A Both private equity and strategic buyers, across all industries, increasingly consider deals in the sustain - ability sphere as a way to achieve growth and improve their business operations, while also enhancing their ESG profile. This is also driven by limited partners pushing private equity firms to prioritise sustainability. These parties are pursuing deals pertaining to busi - nesses and technology in the energy transition field, including new technologies for power and electric - ity generation, decarbonisation, energy storage and circular business models such as recycling. As such, this sector is poised to witness favourable trends in 2025, with anticipated growth in both deal value and volume. Capital will continue to flow into this sector since investors expect the energy transition to become increasingly important for achieving net-zero goals. With capital expected to drift away from assets that are not compatible with the net-zero transition and towards opportunities that are, certain industries and sectors may struggle to secure the required funds. On the contrary, opportunities and new technologies that are compatible with the net-zero transition are expect - ed to increasingly benefit from government (equity) funding (fuelled by governmental regional investment funds, such as Invest NL, and government subsidies). In this context, enterprises with a strong balance sheet will be best positioned to profit from potential deals and opportunities to create value. Enterprises that struggle may find themselves the targets of con - solidation – for example, in the oil and gas industry. Tech investors keep looking for value in AI After a difficult period for tech, and with valuations going down, the authors see investments in this sec - tor increasing, although these investments are largely limited to certain subsectors. This is primarily driven by the demand for commercial maturity and broader application of AI-based solutions, and by a pause in interest rate increases (which is especially relevant for valuations of long-term venture investments). Such demand has not only fuelled innovation but also M&A activity.
The more mature players are looking to acquire AI- related businesses to enhance their own business and stay ahead of the curve. Start-ups specialising in AI have attracted significant investments from major private capital investment firms and tech companies, paving the way for potential M&A deals in the com - ing years. The focus on ESG has penetrated business society, with companies increasingly trying to adopt climate tech solutions to address ESG challenges. This shift in focus creates opportunities for tech inves - tors, and for their portfolio companies, which provide solutions aligned with ESG principles, driving M&A activity in this space. Life sciences assets are resilient to economic volatility and remain attractive to investors There is optimism in the market in relation to an expected increase in activity in the life sciences field, as healthcare assets are resilient to economic volatility and remain attractive to investors. Obviously, navigat - ing antitrust and foreign direct investment rules will remain important in any contemplated transaction in the life sciences sector. Venture capital investments in the biotech sector have been limited in the past year, which is partially attributable to valuation misalign - ment. This resulted in biotech companies falling back on insider rounds or convertible instruments, such as convertible loan notes. However, there is potential for a recovery in biotech funding through venture capital investments, especially once capital markets re-open as an exit route. Financing trends – alternatives to bank financing continue to increase The availability and pricing of debt was a constant point of discussion in 2023–24, where the higher interest rates resulted in lower valuations. In addition, since private equity portfolio companies are typically leveraged with variable interest rate debt, the financ - ing cost of these companies unexpectedly increased, resulting in a substantial reduction of cash after debt service. These factors resulted in situations where pri - vate equity investors had to accept lower valuations when selling their portfolio companies, which required a shift in thinking. The gap between seller and buyer expectations regarding valuations often resulted in such parties failing to reach an agreement and ter - minating negotiations. These negative developments
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