The NeSBIC Investment Fund (NIF) focuses exclusively on the Benelux, a region which our 10 investment professionals all know like the back of their hands. From our offices in Utrecht and Brussels, we look for well-established, old economy, mid- to later stage companies with positive cash flow that offer plenty of room for strategic and operational improvements. We are able to generate a high-quality deal flow thanks to our own network and our relationship with our cornerstone investor Fortis Group.
We believe very strongly in adding value to our portfolio companies and we take a hands-on approach. To that end we’ve developed our own VIPlan®, a method we developed together with PricewaterhouseCoopers that identifies strategic value drivers to optimise the operations of our portfolio companies. Having identified these drivers, we draw up a strategic agenda.
All necessary operational and managerial changes are implemented during the first year, and then the optimisation process starts. Since inception in 1995, we have made 19 investments in companies ranging from a pan-European fruit juice producer to a Benelux-based call-centre and have consistently achieved upper quartile returns.

The NIF network
One of the secrets of our success to date is the quality of the network of our investment professionals. Together, we offer more than 50 years of experience in private equity in the Benelux region. We’ve extended this network with a business advisory board consisting of 15 regional entrepreneurs and ‘captains of industry’ covering all major industry areas. These are our eyes and ears in the market and generate a high-quality deal flow both directly and indirectly. Out of our total deal flow in 2000, 60% originated from NIF’s own networks and that of the business advisory board.

Why the Benelux?
The Benelux1 has been NeSBIC’s home-market since 1969. It has been an attractive market to invest in and prospects remain favourable2.
In the last five years, total private equity investments have grown 32% in the Netherlands and 58% in Belgium. The total amount reached e2.4bn in 1999 and is expected to be higher again in 2000, based on half-year figures.
The number of investments in the Benelux has grown from 600 in 1997 to almost 1,400 in 1999.
M&A activity has continued to increase from 733 transactions in 1997 to 1,200 in 2000, showing the vibrancy of the exit market.
Mid-market companies in the Benelux tend to be internationally oriented due to their limited home markets. This limits their dependence on one or two economies, forcing management teams constantly to seek cross-border growth opportunities.
Another characteristic of the Benelux market is a high level of corporate divestments and family-business succession dilemmas. A recent study by Rabobank shows that in the Netherlands alone, more than 70,000 mid-market entrepreneurs plan to sell their company in the coming years. Due to the consolidation of the Benelux private-equity market, the number of established competitors has decreased. This has led to fewer experienced private equity firms competing for more opportunities, particularly in the mid-market where NIF operates. This makes it easier to ‘cherry-pick’ high quality investment opportunities.

Sustaining upper quartile returns
Attracting enough opportunities to ‘cherry-pick’ is one thing, but how do we ensure that our investment portfolio consistently achieves upper quartile returns for our investors?
We believe the key is to closely involve our investment managers in every step of the optimisation process. For that reason NIF consciously builds relatively small funds managed by relatively large teams, which allows the investment professionals to dedicate enough time to manage their portfolio companies and unlock their value.
To give an example, one of our portfolio companies is Rentco3, a mid-market company active in furniture rental, floor coverings and catering equipment that has grown massively in recent years. Rentco has a leading position in the mature Dutch market and a top three position in the fragmented German market. The VIPlan analyses led to an overall strategic focus on furniture, which enjoys the highest profit margins, and plans for the company to increase profitability further in the Netherlands, while holding market share, and to expand market share in Germany via acquisitions. By implementing central purchasing management, new pricing strategy and category management, the company aims to increase profitability by at least 20% a year. With help from, amongst others, NeSBIC Investment Fund, the company is now executing a cross-border buy-and-build strategy that will position it as the market leader in north-west Europe and generate a strategic premium upon exit.
Taking this structural approach, NIF’s target is to realise a substantial increase in value within three years. But we start laying the foundations for a suitable exit for our portfolio companies from day one, which generally allows us to achieve exits earlier and on better conditions. This substantially diminishes the disadvantages of locking in investors’ money for years as sometimes happens in traditional private equity funds.

Pan-European versus local
The development of large pan-European funds focused on larger deals and companies has been the trend in the private equity market in recent years. But NIF is consciously taking a different route. Pan-European funds usually operate in more competitive environments and usually require a lot of management time to bridge cultural and geographic differences. NIF prefers to dedicate the time saved by not being pan-European to supporting its portfolio companies in accelerating their pan-European growth. So far, this method has proved to be lucrative and low-risk.
Arnaud Diemont is managing partner and Lesley van Zutphen is investment manager at the Nesbic Investment Fund