This article is an extract from Lexology In-Depth: Private Equity - Edition 14. Click here for the full guide.

Introduction

Deal activity

During 2024, deal activity in the Netherlands did not return to the record levels seen in 2021 and 2022, but has certainly not paused either. Both domestic and international sponsors remained active, pursuing investments and exits throughout the year. Compared with 2023, we observed various signs indicating positive development of the market, including an increase in pre-emptive bids, greater confidence from bidders to engage in transactions and improved debt financing conditions.

Processes were frequently structured as traditional auctions in the past year, which continued to be the preferred route for price maximisation. However, due to the ongoing tension in the market, auctions also came with the risk of failure. We therefore repeatedly saw sellers opting for a pre-auction track, attempting to reach a deal with one interested party while keeping the possibility of a full auction in the back pocket.

One-on-ones were also popular in 2024, and we saw more willingness among sellers to enter into an exclusivity agreement early in the process, the terms of which are becoming more sophisticated. Bidders also looked to use pre-emptive bids to their advantage, with mixed success.

In 2024, private equity sponsors continued to invest in a broad range of sectors, including those that are regulated (such as financial institutions, healthcare and accounting), with sponsors becoming increasingly comfortable with the regulatory aspects.

Founder deals were again a significant source of transactions for both domestic and international private equity sponsors. Most founders require reinvestment or are required by the sponsor to reinvest.

The majority of exits by private equity sponsors during the past year took the form of a private sale to one or more other sponsors or to a strategic buyer (possibly backed by a sponsor). In the Netherlands, as is still the case in many other jurisdictions, initial public offering activity was limited during 2024, given the difficult and uncertain macroeconomic backdrop.

As an alternative to exits in a volatile market, similar to other parts of the world, there have been continuation fund transactions, allowing for continued investment in trophy assets while offering liquidity to limited partners. There was also a continued increase in the number of minority investments by sponsors in 2024.

A total of 552 private equity deals1 were announced (49 per cent during the first half of the calendar year and 51 per cent in the second half) during 2024, a number that is comparable with the 513 deals announced during 2023.

Major private equity sponsors active in the Netherlands include international sponsors such as Bain Capital, Bridgepoint, CVC Capital Partners, EQT Partners, IK Partners, KKR and Triton, and Netherlands-headquartered sponsors such as Parcom, Rivean Capital and Waterland.

Operation of the market

Standard sale process

For several years now, sale processes in the Netherlands have most often been structured as controlled auctions. The auction processes generally consist of the following phases.

  1. The preparatory phase (around four to 12 weeks): determination of the deal structure (whereby share sales are the default and asset sales are used in specific circumstances), setting up of the data room, preparation of marketing materials (teaser and information memorandum) and sell-side due diligence (DD) reports or memoranda (financial; tax; legal and possibly commercial; environmental, social and governance; insurance; and information technology), negotiation of non-disclosure agreements and market testing. Potential bidders are invited to further investigate the sale opportunity in the next phase.
  2. The non-binding offer phase (around four to six weeks): sharing of the first-round process letter and information memorandum with potential bidders, possibly fireside chats with the chief executive officer (CEO) or introductory management presentations, and ending with the delivery of non-binding offers to the seller. Also, continued sell-side preparations include finalising an auction draft share purchase agreement (SPA) and exploration of the possibilities of warranty and indemnity (W&I) insurance, typically resulting in a non-binding indications (NBI) report as prepared by the W&I insurance broker. Education of debt financing providers may also be conducted during this phase.
  3. The binding offer phase (around five to six weeks): sharing of the second-round process letter, sell-side DD reports and the auction draft SPA, and possibly the W&I insurance NBI report with (selected) bidders. The DD process will begin in this phase, with access to the virtual data room and management and expert sessions with management as well as sell-side DD providers. On the transaction documentation, detailed (interim) mark-ups of the SPA are typically exchanged with the seller's counsel, and feedback sessions are held. During this phase, bidders will often be granted access to the W&I broker to discuss the NBI report and optimise the insurers' offers before a preferred insurer is selected, making use of the competitive tension between them. This phase ends with the delivery of binding offers to the seller, as much as possible on the basis of certainty of funds and including 'ready to execute' SPA mark-ups. The sponsor will typically expect to discuss the management incentive plan with the CEO and other key managers in the second half of the binding offer phase, allowing for a management term sheet and binding (re)investment commitments to be executed by the CEO and other key managers simultaneously with the SPA.
  4. The execution phase (from one day to around four weeks): final negotiations on the transaction documentation with the chosen bidder or bidders and finalisation of the W&I policy and related underwriting process. This phase ends with the execution of the SPA or signing protocol (in which the parties commit to enter into the SPA after satisfaction of the employee consultation process) as well as the W&I policy. Although not preferred by sell-side, this phase may include confirmatory DD on certain specific items that were too sensitive to share earlier. This needs to be managed carefully to avoid affecting deal certainty.
  5. The completion phase (around four to 16 weeks, or longer if there are complex regulatory clearance requirements): implementation of the transaction by execution of the notarial deed of transfer of the shares in the target after satisfaction of all conditions precedent (which are typically limited to matters that are legally required to close the transaction) (see 'Key terms of recent control transactions', below).

Although these five phases are illustrative of a 'typical' auction process in the Dutch market, this may play out differently based on market or deal dynamics. In certain circumstances, the controlled auction includes an interim phase between non-binding and binding offer. In that phase, certain sell-side reports (or extracts thereof) are shared with bidders, allowing them to firm up their non-binding offer. This will shorten the binding offer phase, allow for a potential acceleration of the process and give the seller a further opportunity to select bidders based on firmed-up offers. These types of tactics were common in the sellers' markets in the past and can be seen again in the current market but for different reasons: sponsor bidders often require more internal steps and a higher degree of comfort about the target, and the sponsor's chances in the auction process, before the sponsor makes a substantial investment for an in-depth investigation in all relevant areas of the asset.

Process letters are typically used to set deadlines and confirm the seller's control of the process, and also may serve to (1) impose certain content requirements for submitting a bid (e.g., regarding the form and calculation of consideration, transaction approvals and explanation of financing of the offer), (2) avoid pre-contractual liability (for termination of negotiations while the buyer could reasonably expect that the deal would be signed) by making clear that the seller is not bound to negotiate or continue negotiations with any party and is free to terminate and amend the process at any time, and (3) reduce the risk of reduced competitive pressure or other surprises by expressly prohibiting collusion and consortium arrangements (which would allow the bidders to jointly strengthen their position and divide risks and costs) unless agreed otherwise by the seller. The phases, timelines and transaction documentation described above, as well as the use of process letters, can equally be seen in one-on-one processes.

Circumstances in which one-on-one processes are, in the Dutch market, generally preferred over controlled auction processes include transactions with obvious purchasers (e.g., for reasons of synergetic advantage or a sale to a sector specialist private equity firm that has already advanced its commercial diligence before the start of the process), unsolicited approaches with a knock-out offer, remedy transactions requiring a quick deal, transactions between sellers and buyers with long-standing relationships, or to avoid the risk of a failed auction.

Management equity incentive arrangements

During the past few years, a broad range of structures has been used in the Dutch market to set up equity (like) management incentive arrangements, including 'sweet' equity plans, long-term incentive plans, exit bonuses, stock appreciation rights (SAR) schemes and various combinations thereof. Primarily, sweet equity plans were used, whereby the sweet element typically refers to the issuance of (plain vanilla) ordinary shares to management, entitling them to (potentially substantial) remaining exit proceeds on the ordinary shares after repayment of all higher-ranked debt, shareholder loans and preference shares. This is in contrast to the sponsor, which will invest in a combination of ordinary and preference shares, with the latter delivering a compounding fixed return of, for example, 10 or 12 per cent per year and the preference shares making up the largest part of the capital at entry at, for example, 80 or 90 per cent, resulting in management investing at an 'envy ratio'. Alternatively, ratchet, or performance, shares can be used to achieve similar sweet economics (a structure more frequently used by non-Dutch sponsors).

The managers' sweet equity investment in the context of a Dutch management incentive plan (MIP) is typically made through a Dutch foundation (STAK) and a holding company (management holdco), with the management holdco being interposed between the STAK and the holdco for tax structuring purposes. The management holdco will hold all the shares in the capital of the holdco allocated to the managers. A STAK will hold all the shares in the management holdco and issue depositary receipts for the shares in the management holdco to the managers. As a result, the managers will indirectly hold the economic ownership of the underlying shares in the target, while the legal ownership remains with the STAK. The voting rights on the shares will be exercised by the STAK and the management holdco. The boards of the STAK and the management holdco will typically consist of the CEO and other key managers and representatives of the sponsor. Documentation typically states that the sponsor can take control over the boards of the STAK and the management holdco – for example, when that is necessary to ensure compliance with the shareholders' agreement.

Governance rights of the managers attached to their investment will typically be limited to fundamental minority protection rights (e.g., exclusion of pre-emptive rights other than for rescue financing or as an add-on consideration, related-party transactions not at arm's length and amendment of the target's articles of association having a disproportionately detrimental effect) that are being granted to the management holdco as a shareholder in the target. The sponsor will seek to limit (or basically exclude) the possibility for managers to sell their stake to other parties and safeguard drag rights with regard to the managers' participation to ensure a smooth exit process in the future. Management will expect tag rights.

Managers will typically be required to give non-compete and non-solicit undertakings in connection with their participation in the MIP. A pending labour law bill regarding restrictions on non-compete clauses in employment agreements will, among other things, limit such agreements to a maximum duration of 12 months and require that employers continue to pay 50 per cent of the employee's salary during this period. These amendments apply equally to non-solicitation clauses for employees. It is not yet clear when the new legislation will enter into force. The legislation is currently aimed only at non-compete and non-solicit clauses in employment agreements and therefore does not directly apply to similar provisions in investment plans. However, we expect that managers will see the legislation as a reference point when negotiating the duration of a non-compete or non-solicit in their MIP documentation.

Leaver classifications have evolved into a relatively stable set. Leaver provisions typically oblige each manager to offer their MIP stake to the sponsor upon the occurrence of a leaver event. The manager will be categorised as a 'good leaver' (generally, a leaver for any reason other than a bad leaver ground) or a 'bad leaver' (typically, a leaver who is dismissed for urgent cause, certain reasonable termination grounds as defined under Dutch employment law, voluntary resignation other than for good cause (death or a serious illness, etc.), material breaches of transaction or employment documentation, commission of crimes or personal bankruptcy, etc.). The relevant purchase price for the leaver shares will typically depend on the leaver type and the timing of the departure. Good leavers will typically receive fair market value (FMV), subject to a customary vesting scheme. Bad leavers will typically receive the lower of fair market value and acquisition cost (less interim distributions). In addition to their MIP investment, certain managers – typically, key senior management such as the CEO and the chief financial officer – may also be invited to make an institutional investment alongside the sponsor on equal economic terms. Typically, a lighter version of the MIP terms will be agreed (e.g., part of the leaver terms), recognising the institutional nature of the investment. The market is shifting to apply leaver terms to institutional investment as well, with the leaver price in respect of the institutional instruments being equal to FMV with a discount or the lower of FMV and acquisition costs in certain 'very bad leaver' scenarios. Less common, but something to consider for sponsors, is whether in such very bad situations an additional discount should apply to the bad leaver price on the sweet investment. This would prevent a very bad leaver (e.g., someone who has breached their non-compete) to walk away break-even on such leaver's sweet investment. Another development is that sponsors are increasingly using three categorisations: good leaver, intermediate leaver and bad leaver. In that case, 'good leaver' is reserved only for termination for good cause (as referred to above) and vesting typically does not apply (or applies but is more favourable to the manager) in such good leaver cases.

We see the number of managers that is invited to participate in management incentive plans increasing. Broad management incentive plans require detailed planning to ensure that the involvement of a large number of managers does not create problems in the period up to completion of a transaction. In addition, having a larger group increases the likelihood of leavers and new joiners during the investment period, which adds to the administrative burden of the incentive scheme for the sponsor and the company. In this context, SAR schemes can be used as a more practical alternative – removing the need for complicated legal structuring and requiring less documentation. If structured diligently, the effective tax burden for the manager can also be decreased, making SARs a viable alternative to sweet equity.

The managers' MIP investment is typically structured in a tax-efficient manner for the managers. To confirm the tax treatment of the managers' investment, an advance tax ruling may be requested from the Dutch tax authority. The ruling will likely not be obtained before completion of the transaction, and managers will therefore (1) enter into a commitment letter setting out the terms of their participation and (2) transfer the amount they will invest to the target as an advance payment for their depositary receipts. It is customary for management to be in the lead on the tax ruling process, with their tax adviser, as it is also for their risk. If no tax ruling is obtained within nine to 12 months of completion of the transaction, the original investment structure will be implemented (unless agreed otherwise). Generally, it will be agreed that managers are liable for any tax or social security contributions and other levies relating to their investments based on a tax indemnity. In the context of Dutch MIPs structured through a STAK and a management holdco, non-Dutch managers (e.g., Belgian managers) often prefer to sell their depositary receipts to realise a lower-taxed or exempt capital gain instead of a dividend.

The increased Dutch personal income tax rate applicable to traditional Dutch management equity participation structures of 31 per cent (24.5 per cent for the first €67,804 of dividends and capital gains) and increased lead time required to obtain a tax ruling have made these equity structures less attractive compared with those in 2023 and earlier, as do their implementation and maintenance costs. As a result of these developments, cash bonuses (e.g., based on SARs), potentially combined with either a traditional (sweet) management equity participation with a lower envy ratio or an institutional investment, to ensure that the manager has 'skin in the game', can be a viable alternative. This is especially the case if it is decided not to obtain a binding tax ruling in respect of the equity investment. If structured properly, payments under these rights can be deductible for Dutch corporate income tax purposes for the target group if paid to managers with an annual (gross) salary of less than €707,000 (2025). If the corresponding tax benefit (assuming that the group is profitable) is subsequently passed on to the managers, the after-tax proceeds for the managers approaches the net proceeds of traditional Dutch management participation structures. SARs may, in certain circumstances, increase the risk of an excessive severance levy becoming due by the employer if the employment of a manager is terminated. This levy generally may apply, subject to certain other limitations, if the manager's annual (gross) salary exceeded €680,000 (2025) in the second year preceding the year of the termination; this salary also includes any payments under a SAR in the given year.

Year in review

Recent deal activity

Both domestic and international sponsors continued to pursue investments and exits in the Netherlands during 2024. Significant transactions in the Dutch market involving international sponsors included Triton's acquisition of VolkerWessels' Energy, Telecom and Technical Installation business, Bridgepoint's acquisition of specialised managed IT service provider Schuberg Philis, BlackFin Capital Partners' acquisition of independent wealth manager IBS Capital Allies, and the sale of Bugaboo, producer of strollers and children's consumer products, by Bain Capital to Mubadala Capital. Other major transactions in the Dutch market included Inflexion's contemplated acquisition of accountancy and advisory firm Baker Tilly Netherlands, Pollen Street's acquisition of insurance software provider Keylane Group from Waterland, and the sale of Duomed Group, a distributor of medical devices and surgical solutions, by G Square to Palex Medical. For Netherlands-headquartered sponsors, the acquisition by Parcom of Robin Radar, a developer of radar systems, and the acquisition of a majority stake by Rivean Capital in digital transformation service provider Valcon from Waterland, were two of the most noteworthy transactions in 2024.

The number of minority investments by private equity sponsors in the Dutch market increased further in 2024. The reasons for this include the rise in minority-focused private equity sponsors, valuation gaps, shareholders seeking growth and further professionalisation of the company through the involvement of a sponsor, offering liquidity to some of the shareholders, and the desire not to trigger change of control rights in existing financing arrangements so as to maintain these for at least a certain period after completion of the investment. One example of a minority investment announced at the beginning of the year was the acquisition of a significant minority stake in Reducate EdTech Group, a European online continuing professional education platform, by All Seas Capital.

Financing

The financing environment for private equity transactions resurfaced in 2024 as a result of central banks decreasing interest rates and increased investors' appetite. Borrowers have used the improved landscape to refinance existing capital structures on more attractive terms and lock in attractive financing for M&A transactions.

The Dutch acquisition financing market for private equity deals has traditionally been served largely by Dutch and larger European banks providing syndicated loans, but private debt financing has become a real alternative in the Dutch acquisition financing market and has become the main source of financing for sponsor-led acquisitions in the mid-market. Traditional banks are still willing to provide club deal financing or underwrite syndicated Term Loan B structures, with private debt facilities often being structured as unitranche, often topped up with a (super senior) revolving credit facility provided by a relationship bank at the target level. There are a limited number of high-yield financings and, although less common, other financing solutions such as mezzanine facilities, preference shares or other structures can be employed, depending on the required debt quantum and deal structuring. Net asset value financing activity in the Netherlands has so far not been as prominent as in other countries, but sponsors have started to look into possibilities to raise additional debt at the fund level. Terms for bank financing are highly standardised (Loan Market Association based), and private debt facilities are often based on previous transactions in which the sponsor and the relevant credit fund have cooperated. Most unitranche and Term Loan B financing arrangements are cov-loose (i.e., having at least one maintenance covenant, typically leverage, with substantial headroom over opening leverage), with specific covenants and the requirement for security differing from case to case, based on, for example, the financial position and business of the target company and the size of the debt.

The timely engagement of the target's directors in M&A processes where leveraged financing is used by the purchaser is becoming increasingly important in the Netherlands. Executive and non-executive directors will want to be comfortable that the financing is in the interests of the company in order to fulfil their fiduciary duties.

Key terms of recent control transactions

Purchase price adjustments

The locked-box mechanism clearly remains the prevalent purchase price mechanism in the Dutch market and is used in the majority of private M&A. The locked-box mechanism continues to develop and is increasingly being used in more complex deal settings where, previously, parties were inclined to use completion accounts instead. This includes the increased use of a locked-box mechanism in carve-out transactions with material interrelations between the seller and the target, such as a shared cash pool, joint customers and the use of group-wide support functions by the target. The use of completion accounts tends to be limited to (1) complex carve-out transactions, often if no sufficiently stable set carve-out financials can be produced up front; (2) deals in which this is required by a buyer preferring completion accounts and who has a particularly strong negotiation position; or (3) transactions in which there are concerns about the latest available accounts (non-audited accounts are used regularly for locked-box transactions, though concerns may arise if there are too many recent changes to the organisation or business, for example).

In general, a locked-box mechanism allows for simpler SPA negotiations, price certainty at signing and completion, and a lower likelihood of disputes. The enterprise value is adjusted up front in accordance with a historical balance sheet date to determine the equity value (in contrast to completion accounts, where the adjustment takes place post-completion). In a locked-box deal, risk and economic benefit transfer as at the date of, or more specifically the day after, the locked-box accounts (the 'effective date'). The equity value is agreed at signing (based on the locked-box accounts). At completion, the equity value and locked-box compensation are paid, minus notified 'leakage'. There will typically be significant negotiations around the appropriate locked-box compensation for the period between effective date and completion and the scope of the leakage and, in particular, permitted leakage.

In 2024, we continued to see an increased use of earn-out and ratchet mechanisms to adjust the purchase price post-completion (via reallocation of shares or proceeds), helping to bridge (sometimes significant) valuation gaps in the context of an uncertain market outlook. Payout of earn-outs and ratchets is typically subject to certain (financial) performance-based milestones.

Conditionality

Completion conditions in Dutch private equity transactions are typically limited to matters that are legally required to close the transaction. In most cases, this means required merger clearance, any applicable sector-specific regulatory approvals (e.g., for financial institutions or healthcare targets) and possibly foreign direct investment (FDI) approvals in relevant jurisdictions and foreign subsidies review (FSR) by the European Commission. If applicable, it will also include completion of required works council consultations in the Netherlands and any other relevant jurisdictions. It is still less common for other conditions to be included (e.g., no material breach of representations and warranties and no material adverse change (MAC) to the relevant business or buy-side financing condition), although (1) business-related conditions are sometimes seen in more complex or proprietary transactions and (2) we have seen a slight increase in the use of MAC clauses (whereby it depends on the negotiation leverage of the parties whether such clauses make it to the execution version of the SPA). Financing conditions are also seen in certain specific situations – in particular, in one-on-one processes if the parties are keen to move forward even though financing has not yet been secured and a full equity underwrite is not feasible.

Liability regime

The seller and purchaser will negotiate certain covenants and arrangements in relation to W&I insurance in the SPA to agree on allocation of liability. Warranties can be divided into fundamental, business and tax warranties. Warranties can also be divided into those confirming the absence of certain circumstances that are within the control of the company, those allocating risk on unknown matters and those confirming that certain disclosures have been made. In relation to tax matters, a tax indemnity will typically be included, under which the seller will indemnify the purchaser for the company's historical tax liabilities. A tax indemnity will generally be limited by specific exclusions, caps and time limitations.

W&I insurance continues to be used in the vast majority of transactions in the Dutch private M&A market (mid-market and large market). This has led to a 'clean exit', or near clean exit, being the market standard approach. Typically, the W&I insurance policy would be a buy-side policy, although the costs are sometimes (partly) allocated to sellers (either expressly in the contract or through the equity value).

When W&I insurance is used, the seller's liability (for business warranties and tax claims) is capped in the SPA at a nominal amount – typically, €1, or an amount equal to the deductible (i.e., 0.25 per cent to 1 per cent of the enterprise value). Fundamental warranties (limited either to the target company only or also including all or part of the subsidiaries) will be subject to a higher cap – typically, 100 per cent of the consideration. In 2024, more often than in previous years, we have seen sellers pushing buyers to take out either a separate title warranty insurance policy or a title top-up to 100 per cent of the consideration on the regular W&I insurance policy to ensure a full clean exit for the seller. So far, this has, in only a limited number of transactions, resulted in full title warranty insurance being taken out by the buyer. The allocation of the additional premium in connection herewith is often an important negotiation item between the parties.

The time limitations for bringing a claim will vary depending on the nature of warranty, the negotiation positions and other circumstances. Typically, 24 months tends to be the market standard for business warranties, with up to seven years (or the relevant statutory period, where applicable) for fundamental warranties and tax claims. Business and tax warranties are commonly qualified by disclosure. Typically, a seller will expect at least data room disclosure (subject to the 'fair disclosure' definition). Disclosure against (part of) the fundamental warranties is a negotiation item.

Limitations on liability in the SPA generally also apply to the W&I insurance policy, but certain additional limitations may apply. These include known risks, standard or industry-specific exclusions, and the exclusion or qualification of specific warranties (as negotiated between insurer and purchaser). Fraud and possibly wilful misconduct will be excluded from coverage.

Management warranty deeds (in which business and tax warranties and the tax indemnity are provided by management in a separate deed, rather than by the seller in the SPA) are not common in the Dutch market. Nevertheless, there has been an increase in their use, particularly in exits involving international sponsors, whereby the deed forms the basis for the W&I insurance policy. Where used, market practice is to limit the liability of managers to fraud and, possibly, wilful misconduct only.

Legal framework

Acquisition of control and minority interests

Structuring of the acquisition

Most private M&A transactions in the Netherlands are structured as share sales. This is typically the simplest and fastest transaction structure to implement and therefore is preferred by sellers running competitive auction processes.

Acquisitions are done through an investment stack of three or four private limited liability companies established by the sponsor (investco – holdco – (midco) – bidco), mainly for financing reasons (single point of enforcement), limitation of liability, tax structuring and implementation of the exit structure. The bidco will sign the SPA and acquire the shares in the target. Third-party financing is also attracted at the level of the bidco, and share pledges on the shares in the bidco are given to secure financing. For recoverability of Dutch value added tax (VAT) on transaction costs, it is important that the bidco becomes an entrepreneur for VAT purposes. This is often done by moving executives from the target group to the bidco with completion of the transaction and having the bidco provide management services to the target group.

Where the buyer is a private equity party and the seller is a founder or founding family (but also for corporate sellers), it is becoming increasingly customary in the Dutch market for some or all sellers to retain part of their investment in the target. This is typically achieved through a cashless rollover into the sponsor's holdco entity. Not surprisingly, the shareholders' agreement requires careful consideration to protect the sponsor's rights while also taking into account the founder's shareholding percentage.

Legal framework for a sponsor's control investment

Dutch corporate law for private limited liability companies is flexible and can accommodate specific rights and obligations of the different corporate bodies of the company and, in general, the corporate governance of the company in its articles of association. Nevertheless, shareholders' rights are often contractual in nature and set out in the shareholders' agreement (which the parties may agree to keep confidential) rather than in the articles of association (which are publicly available through the Dutch trade register).

The corporate bodies of each Dutch private limited liability company will include the general meeting of shareholders and the management board. In addition, a supervisory board is mandatory for certain large companies and is sometimes established on a voluntary basis within other companies. The management board is the main responsible corporate body to run the company's day-to-day operations and set and execute the company's strategy, targets and policies. The supervisory board's tasks include overseeing and advising the management board. Establishing a supervisory board allows for an efficient governance mechanism in which, among other things, (1) sponsor representatives can be involved, providing direct access to business information and management and, as such, contributing to the sponsor's control over the business, and (2) (former) executives or other industry experts can be involved, providing added value and relevant experience to the particular business (see 'Fiduciary duties and liabilities', below). As an alternative to the two-tier structure with separate management and supervisory boards, Dutch law also provides for the possibility of establishing a one-tier board comprising both executive and non-executive directors.

Given the management board's key role in the strategy and operations of the company, the power to appoint and dismiss members of the management board will provide an important way for a shareholder to (indirectly) control the business. Under Dutch law, the holder of the majority of the voting rights in the general meeting of shareholders will, in principle, have the power to appoint and dismiss members of the management board, unless a mandatory supervisory board is established under the large company regime (which will then have those powers unless exceptions apply).

Further, in both a majority and a minority context, the sponsor can ensure control over the business by making important business decisions subject to its veto right in either the general meeting of shareholders or the supervisory board (these may be extensive; examples include approval of the budget and business plan and voluntary deviations thereof, M&A, significant investments, material financing, important human resources topics, material litigation, compliance and decisions in relation to large contracts). Relevant for the allocation of veto rights to the general meeting or the supervisory board is that – in short – the shareholders may, to a large extent, pursue their own interests, whereas supervisory board members will need to act in the best interests of the company (see also 'Fiduciary duties and liabilities', below). Veto rights and reserved matters will be addressed in the shareholders' agreement and may also be included in the articles of association.

Exit structuring considerations

Each transaction involving multiple significant shareholders requires detailed discussions and scenario planning to determine the exit rights (if any) of each shareholder – for example, the right to initiate any exit process and related drag- and tag-along rights. Each party's rights will depend, to a large extent, on the nature and incentives of the shareholders involved (e.g., majority or minority sponsor, founder and management) and the allocation of equity and voting rights among them. During the past few years, we have observed a wide variety of arrangements addressing the requirements of the shareholders in this regard.

In the successful execution of the actual exit process, management plays a crucial role, including by facilitating the DD investigation, giving management presentations, and providing business and tax warranties. As part of the MIP arrangements, participating managers typically commit to cooperate in good faith with the exit process and to negotiate in good faith on the rollover of (part of) their investment upon an exit if required by the financial sponsor buyer. Management will have no shareholder rights to initiate an exit process.

If the sponsor is domiciled outside the Netherlands, a key exit structuring consideration is to implement an investment structure that allows for the sponsor to realise a tax-exempt capital gain through the sale of the Dutch top holding company by the non-Dutch holding company (e.g., a Luxembourg or UK entity). Otherwise, dividend distributions (i.e., the proceeds in excess of the contributed capital) are generally subject to 15 per cent dividend withholding tax. As of 1 January 2024, a 25.8 per cent rate applies to distributions to related parties in certain tax havens and in certain abusive structures. Further, the Dutch top holding company of the group is generally parent of a fiscal unity for corporate income tax purposes. This also allows for the sale of the whole Dutch corporate group without (1) terminating the fiscal unity and potentially triggering degrouping tax charges, (2) retaining residual tax liability and (3) causing issues around non-insurability of potential secondary tax liabilities arising in connection therewith. This typically requires a sale by the sponsor, potential co-investors and MIP vehicles, resulting in some (usually manageable) complexity in the transaction documentation (i.e., more than one seller).

Fiduciary duties and liabilities

In a private equity setting, the sponsor plays a significant role in terms of the (financial and operational) strategy of its portfolio companies. It is important to consider the various roles in which the sponsor is involved and what particular responsibilities and risks are associated with these roles.

Duties and liabilities of a shareholder

Under Dutch corporate law, the most prominent statutory obligation of shareholders of a private limited liability company is to pay the subscription price of their shares in the company in full. In specific circumstances, further obligations for the shareholders may arise from the general duty of reasonable and fair behaviour that applies to all parties involved in the company's organisation. This may also result in a duty of care by the majority shareholder towards minority shareholders.

In addition, Dutch corporate law distinguishes three categories of further obligations and requirements that can be imposed on shareholders: (1) obligations of a contractual nature towards the company, other shareholders or third parties; (2) qualitative requirements relating to the shareholding; and (3) obligations to offer and transfer shares in specific circumstances set out in the company's articles of association. These obligations and requirements cannot be imposed against the will of the shareholder (i.e., if they are being attached to the shareholding by an amendment of the articles of association, the (current) shareholder who did not consent is not bound).

In principle, shareholders are (in their capacity as shareholder) not liable for debts and obligations of the company in which they hold shares. There are limited exceptions to that principle, including (1) explicit guarantees given by the shareholders and (2) de facto directorship (if a shareholder assumes rights reserved to management and de facto manages the company and subsequently faces director liability (see further below)). As such, in the context of potential liabilities, shareholders should be careful about giving detailed instructions or exerting undue influence on the management of the company. This applies, in particular, in sensitive areas, such as transactions between shareholders and the company, preparation of annual accounts and assessment of the company's financial situation (including liquidity and any potential filing for bankruptcy, etc.). Of course, the sponsor can be closely involved by advising the company, as long as such a role is sufficiently clear for all stakeholders involved.

Duties and liabilities of members of the management board

As already noted, the management board has a key operational and strategic role in managing the company. Duties and responsibilities include (1) monitoring the company's risks, solvency and liquidity; (2) ensuring that the company complies with applicable laws and regulations; (3) managing the finances of the company; and (4) meeting legal obligations with regard to the company's accounts and any potential duties to publish certain other information. We typically see no sponsor representatives on the management board (rather, on the supervisory board instead (see further below), or in a one-tier structure, in a non-executive role). If they were on the management board, however, they would have the same fiduciary duties as the other members of the management board.

Managing directors must fulfil their duties in the interests of the company. In the Netherlands, the stakeholder model applies. In accordance with this stakeholder model, the interests of the company – in short – not only are creating (long-term) shareholder value but also encompass long-term value creation for the company and its affiliated undertaking and take into account the stakeholder interests that are relevant in this context. Stakeholders include groups and individuals who, directly or indirectly, influence or are influenced by the attainment of the company's objectives, such as shareholders, employees, suppliers, customers, the public sector and civil society.

Directors can be personally liable towards the company if they have not fulfilled their duties as a director and such a failure is severely reproachable. In cases of bankruptcy, directors can be personally liable to the company's estate if they have manifestly improperly managed the company and those actions are an important cause of the bankruptcy. Not filing the annual accounts on time or otherwise breaching accounting obligations leads to evidentiary presumptions. Managing directors can further be personally liable to third parties for other types of actions or omissions if those actions lead to directors' duties being breached and that breach is severely reproachable, including if they entered into contracts when they knew, or should have known, that the company would be unable to meet its obligations or offer recourse.

The past years have seen increased scrutiny on the satisfaction of the responsibilities of the management board in an exit process in which the purchaser is expected to use acquisition financing. The management board members must be involved in the M&A process in a timely manner, to be able to fulfil their duties and safeguard the company's interests. When directors face potential or deemed conflicts of interests (which may be the case if they hold equity stakes or are entitled to transaction bonuses), a higher duty of care may apply.

Duties and liabilities of members of the supervisory board

The supervisory board is responsible for supervising management and for challenging and advising as and when necessary. Where shareholder representatives act as a supervisory board member of a company, a conflict of interests may arise. Supervisory board members should always act – in their role as a supervisory board member – in the best interests of the company. Similar to other supervisory board members, those appointed by shareholders may receive information about the company's business and financial situation, etc., provided that any conflicts of interests are addressed properly. Circumstances in which shareholder-appointed supervisory board members should consider their position carefully and possibly refrain from taking part in decision-making in any case include those in which the relevant supervisory board member has a personal conflicting interest (e.g., a transaction between the group and a third party controlled by that supervisory board member), but may also arise if there is a clear conflict of interests between the company and the relevant shareholder (e.g., in distressed situations). Conflicting interests with supervisory board positions in other portfolio companies are generally not conflicts of interests under Dutch law.

General director liability rules also apply to supervisory board members. This also applies to the increased scrutiny on the satisfaction of the responsibilities of the supervisory board in exit processes in which the purchaser is expected to use acquisition financing mentioned above. Given the nature of the responsibilities of supervisory board members, a high(er) threshold for liability applies. If issues arise (e.g., those that threaten the company's continuity), the supervisory directors should make sure that they meet sufficiently frequently to be able to monitor the affairs of the company more closely and react adequately and in a timely manner to challenges the company faces. To mitigate liability risks, they should document their discussions carefully. We often see a supervisory board committee being established to deal with the specific circumstances at hand on a day-to-day basis.

Regulation

There is no specific oversight for private equity transactions in the Netherlands, although fund managers themselves are regulated (see the Netherlands chapter in the fundraising section of this title). As noted above, merger clearance, FDI, FSR and, possibly, sector-specific regulatory approvals may be applicable in private equity transactions. An acquisition of direct or indirect, sole or joint control of an undertaking must be notified to the Netherlands Authority for Consumers and Markets (ACM) if the notification thresholds are met – namely, (1) the combined turnover of the undertakings concerned in the preceding calendar year exceeded €150 million and (2) the turnover of each of at least two undertakings in the Netherlands exceeds €30 million – and the transaction falls below the thresholds for notification to the European Commission. Depending on the facts and the agreed governance structure, merger control approval by the ACM (or, in some cases, the European Commission) may apply to both minority and majority investments. If a transaction needs to be notified to the ACM, a standstill obligation applies, meaning that it cannot be implemented before clearance has been obtained. There will also be scrutiny of the purchaser exercising decisive influence over the target or the parties sharing commercially sensitive information prior to completion, to protect against the risk of gun jumping.

The ACM requires the notifying parties to provide information on all acquisitions of sole or joint control in the previous five years, provided that such an acquisition affected a product market in the Netherlands. This also applies to acquisitions that were not previously notified to the ACM. These can either be acquisitions that have been notified to other national competition authorities or to the European Commission or acquisitions that did not meet the applicable thresholds. The latter is part of the ACM's recent policy of taking a more critical view of large companies and private equity funds that, through a series of acquisitions, gradually acquire a dominant position or that, at least gradually, lead to over-concentration of markets (roll-up strategies). In its assessment of a possible lessening of competition, the ACM considers not only the effects of the acquisition in question but also the effects of all past acquisitions, including those that have not been notified, and the effects of future acquisitions that are reasonably likely to be implemented. The ACM has requested the Dutch government to entrust it with the power to call in below-the-threshold acquisitions for review as well, which is currently being considered by the Dutch government.

Dutch competition law also prohibits anticompetitive agreements, similar to EU competition law. In relation to M&A transactions, this means that non-compete clauses and non-solicitation clauses between the seller or management and acquiring parties have to be limited to what is necessary for the implementation of the transaction.

Additionally, sector-specific requirements may apply. In respect of financial services targets, approval is likely to be required from the Dutch Central Bank, the Dutch Authority for the Financial Markets (AFM) or, where the transaction relates to a bank, the European Central Bank. Investments in accountancy firms may be subject to a consultation procedure with the AFM. Certain healthcare transactions will be subject to the approval of the Dutch Healthcare Authority. For large transactions in the utilities (including energy transportation and supply) and the telecommunications (which is broadly defined, also including, for example, data centres) sectors, there are dedicated statutory frameworks, and there may be specific notification requirements.

The Dutch FDI screening regime (the FDI Act) entered into force on 1 June 2023. The FDI Act covers sectors that are of national interest, and these are grouped in four categories: (1) vital providers (e.g., key financial market infrastructure providers, main transport hubs, heat network and gas storage operators, and nuclear power companies); (2) sensitive technologies (including dual-use technologies and technologies in relation to military goods); (3) highly sensitive technologies (e.g., quantum technologies, photonics, semiconductors and high-assurance products); and (4) investment in a high-tech campus. When in scope of the FDI Act, any acquisition of such a party (minority transactions may also be within the scope of the FDI Act) must be notified to the Minister of Economic Affairs. In such cases, a standstill obligation applies, meaning that the transaction cannot be implemented before clearance has been obtained.

In 2024, the Dutch government published a draft amendment that aims to broaden the scope of the FDI Act for new technologies, labelling them as 'sensitive'. These concern six new technologies: (1) advanced materials; (2) biotechnology (including pharmaceuticals, plants and seeds); (3) artificial intelligence (limited to personal tracking and imitation such as deepfakes); (4) nanotechnology; (5) sensor and navigation technology; and (6) nuclear technology for medical purposes. This amendment is in line with the proposed amendment to the EU's 2024 FDI Regulation. In addition, some technologies currently considered sensitive will be 'upgraded' to highly sensitive. These concern information security and satellite communications. Furthermore, the government has published a draft bill for public consultation in 2024 that may introduce FDI screening in the defence industry.

In addition, certain transactions fuelled by foreign subsidies are subject to screening by the European Commission under the EU Foreign Subsidies Regulation (FSR),2 which came into effect on 12 July 2023. The FSR imposes a mandatory pre-notification to the European Commission for transactions involving (1) a target generating turnover in the European Union of at least €500 million and (2) an acquirer and a target that, together, received more than €50 million in foreign financial contributions in the previous three years in aggregate. When a transaction is in scope of the FSR, a standstill obligation applies, meaning that the transaction cannot be implemented before clearance has been obtained.

Outlook and conclusions

Deals

The ongoing tension in the market has increased even further, driven by macroeconomic and geopolitical developments, and is likely to continue in 2025. We expect deal activity in the coming year to evolve to around the levels seen in 2023 and 2024, and may see even more creativity around deal structures in 2025 in an unstable market. Continued rollover by sponsors upon exit may be used to bridge a value or funding gap, or to retain the possibility of continued upside as a minority shareholder (if fund vintage allows for it) while showing successful exits to investors and the market. Although there may now be fewer trophy assets to move to continuation funds, further continuation fund transactions are likely as market practice around topics such as valuation and conflicts of interest grows. Continued minority stake investments are expected to be seen as well, which could also include co-investments alongside another sponsor or a rollover founder (serving to bridge a value gap and secure commitment from the founder going forward, or for other reasons mentioned earlier). Add-on acquisitions were popular in 2024 and we expect that to continue in 2025, on top of sponsors' focus on platform deals.

Financing

It is expected that the debt financing markets will remain stable in the coming year, with private credit becoming more prominent in private equity deals, as they often offer more flexible and tailored financing solutions compared with those offered by traditional banks. The debt financing markets have only just resurfaced and continue to be exposed to geopolitical developments, macroeconomics trends, interest rates and economic conditions, which may significantly impact the availability and cost of financing. Parties are therefore expected to continue to strike a balance between securing certain funds financing at an early stage and maintaining the confidentiality of a transaction. Consequently, financing is expected to continue to be a prominent aspect of negotiations on private equity transactions.

Regulatory

In the Netherlands, as well as elsewhere, there is marked political movement towards more investment screening due to geopolitical developments. The Dutch Investment Review Agency (BTI) is willing to engage with businesses and is open to informal discussions. For private equity transactions, the evaluation criteria are still being developed. It is expected that evaluation will take a holistic approach – looking beyond one single investment and considering, for example, the track record of the fund (and related funds) and the identity of the limited partners. The BTI has provided guidance that (1) investments in greenfield businesses and (2) entering into a convertible loan do not fall within the scope of investment screening (although the exercise of such convertible loans may fall with the scope). A legislative proposal for sectoral investment screening in the defence sector is currently being considered by the Dutch Parliament. Further changes in the Dutch regulatory landscape may follow from the European Commission's 24 January 2024 package of initiatives, including a proposed redraft of the current EU FDI Screening Regulation3 and an initiative that may lead to new rules for screening outbound investments. Last, we expect enhanced scrutiny by the ACM in respect of roll-up strategies, including buy-and-build by private equity. At the request of the ACM, the Dutch government is considering new legislation that may give the ACM the power to intervene in cases of below-the-threshold acquisitions, potentially leading to more extensive review processes.

Acknowledgements

The authors wish to thank Henk van Ravenhorst, Lorenzo Ramnarain, Lisa de Boer, Stephanie The and Wessel Geursen for their assistance in drafting this chapter.