The Benelux region has recently seen a cooling in deal activity, with transaction volume down nearly 50% over the past year. This tend reflects broader market uncertainty but also hints at a potential rebound in specific sectors, as discussed at our recent M&A Breakfast in Amsterdam.

The TMT sector continues to offer the most potential for M&A deals in the near term for the region. This aligns with broader global trends, where technology-led transformations are creating opportunities for consolidation and investment. While the deal pipeline reveals a sluggish pace, with preparation times extending to 47 days on average in the Netherlands per Datasite’s anonymized data – twice the EMEA norm – this extended due diligence is indicative of a growing focus on strategic alignment and thorough valuation.

The TMT sector’s dominance is unsurprising, given the region’s strong digital economy and the ongoing demand for scalable software solutions. However, protracted diligence periods highlight the complexity of transactions in this sector. As businesses seek clarity in valuation and regulatory compliance, the importance of a clear and compelling equity story cannot be overstated and the need for meticulous preparation and positioning is more critical than ever.

Learning to Adapt for Success

The case of Keylane, a software provider serving insurance and pension markets, underscores the importance of adapting to market dynamics, particularly in sectors like TMT where innovation and differentiation drive success, and offers valuable insights into the importance of strategic repositioning in the M&A process. By tailoring its value proposition, streamlining its tech stack, and separating distinct business units, Keylane not only navigated the challenges of a cooling market but also maximized its appeal to a diverse range of buyers.

By 2017, Keylane had emerged as a market leader in the Netherlands and Belgium, providing core insurance platforms for the property and casualty (P&C) as well as life and pension (L&P) markets. Waterland Private Equity, had spent seven years acquiring a series of companies, building a portfolio of legacy and SaaS products, including Keylane, which it launched for sale in 2017. Despite Waterland’s success in acquisitions, they could not find a buyer, due to several factors:

• Revenue Ambiguities: Revenue metrics were unclear. While contractual and recurring revenues existed, their classification was inconsistent, reducing buyer confidence.
• Legacy vs. SaaS: Clients were accustomed to legacy systems, but the industry was shifting toward SaaS. The lack of a unified technology strategy created uncertainty.
• Dual Business Dynamics: P&C and L&P markets required distinct approaches. Their integration into a single entity muddled the strategic narrative.
• Limited International Reach: Beyond Belgium, Keylane’s footprint was minimal, posing growth challenges for potential buyers.

Turning Challenges into Opportunities

After the failed 2017 sale, Waterland undertook a comprehensive repositioning of Keylane to try and turn things around.

• Revenue Clarity: The team meticulously categorized revenues into contractual, recurring, and one-off streams, ensuring transparency and aligning metrics to industry standards like cash EBITDA. This enhanced buyer confidence.
• Business Separation: Recognizing the fundamental differences between P&C and L&P markets, Waterland separated Keylane into two distinct businesses. Each division was provided with tailored strategies, leadership, and go-to-market approaches, clarifying their value propositions.
• International Expansion: Keylane strategically acquired local champions, such as a leading life and pension player in Denmark. For P&C, it localized its SaaS platform, enabling entry into larger markets like Germany. Winning top-tier German insurers demonstrated scalability and reduced perceived risk.
• Technology Decisions: A decisive approach to technology was adopted. While SaaS was emphasized, legacy systems were maintained for clients unready to transition, creating flexibility without alienating existing customers.

A Clear and Compelling Proposition

By early 2024, Waterland launched the repositioned Keylane into the market, with distinct offerings for P&C and L&P. This dual-process sale attracted significant interest from private equity and strategic buyers. Key factors driving this interest included:

• Strategic Clarity: The separation of P&C and L&P businesses addressed buyer concerns about conflicting business dynamics.
• Market Leadership: Both divisions were leaders in Northwest Europe, with strong growth trajectories and international proof points.
• Robust Financial Metrics: Clear revenue and EBITDA figures gave buyers confidence in Keylane’s financial stability.

In a surprising turn, both businesses were ultimately sold to a single buyer, Pollen Street. Initially focused on P&C, Pollen Street saw synergies in acquiring L&P as well, using cash flows from one to finance the other. This outcome validated the new approach, as the clarity of the repositioned businesses made them attractive individually and collectively. The Keylane case underscores the critical elements of successful strategic repositioning in M&A:

• Clarity and Focus: Ambiguity is a deal-killer. Buyers must see a clear path to value.
• Tailored Strategies: Different business lines may require distinct approaches to maximize their appeal.
• Scalability and Proof Points: Demonstrating international growth potential can elevate perceived value.
• Alignment with Market Trends: Balancing legacy systems with SaaS migration ensures relevance and flexibility.

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