NETHERLANDS Law and Practice Contributed by: Gianluca Kreuze, Ruben den Hollander, Anne van Geen and Sanne van Esterik, Loyens & Loeff
obligations and more headroom on the financial covenants. Direct lenders are often flexible on equity cure mechanics, normalisation provisions with respect to financial covenants, access to incremental lines and the use of grower bas- kets that are linked to financial performance or size of the borrower. As a result of this flexibility, borrowers are less likely to default under these financing arrangements, which in turn minimises interference from debt providers. Although the level of negotiation strongly var- ies per transaction and debt provider, key areas of negotiation typically revolve around what is permitted under the general undertakings (even more so in light of buy-and-build strategies), equity cures, financial covenants and financial reporting. As to financial covenants, an impor- tant area of negotiation between the borrowers and the lenders is the use of equity cures and calculations of the structuring EBITDA (including normalisations). Market Performance In 2024, the Dutch acquisition finance market slowly started to emerge from the slowdown caused by a challenging environment of rising interest rates in 2023 and inflation and geopoliti- cal uncertainties that had dampened investment appetite. While deal activity picked up in 2024 after hitting a low point the previous year, overall deal volume remained below initial expectations. Throughout 2024, refinancing activity remained the primary driver of volume in the debt finance market, while low M&A volumes endured due to elevated cost of debt and delayed sponsor exits. Despite some stabilisation, the “value gap” (the difference between what a seller expects and a buyer is willing to pay) still presents a chal- lenge within the market. Ongoing economic uncertainty makes buyers more cautious, lead-
ing them to review asset valuations, while sell- ers often expect prices to stay at levels seen before the 2023 increases. In particular, this has affected larger transactions and the high-yield bond market, which primarily remains open to strong sponsors and high-quality assets. This mirrors general private equity transaction mar- ket activity, although market participants in the medium and smaller-sized space are still con- sidered active. The continuing market volatility has forced cer- tain lenders to reassess their capital require- ments and financing strategies. Most lenders have become more risk-averse, and are closely monitoring portfolio-company performance to determine the impact of inflation, labour costs and supply-chain issues. Longer timelines for deal closures have resulted from increased due diligence and a need for lenders to assess and mitigate potential risks associated with geopo- litical events and economic changes. Due to a longer process and risk-shy investors, parties were less likely to come to a deal or deals came to a (temporary) halt or stopped altogether. In addition, commercial banks need to cope with capital requirements which often affect debt quantum and pricing. As a result, borrowers in the Netherlands may face increased costs and stricter terms when accessing finance. (Borrower-Friendly) Terms Although the current market can still be classified as borrower-friendly, lenders do seek additional protections amid ongoing economic uncertain- ties by tightening conditions on certain types of transactions. For example, they may demand tighter financial covenants and enhanced report- ing requirements, or require higher equity contri- butions from sponsors to manage risks. In addi- tion, lenders have become more selective, and focus on a higher quality threshold for credits
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