BELGIUM: An Introduction to Corporate/M&A

Economic Conditions

After an exceptional year in 2022 and an anticipated slowdown in the level of activity in 2023, the Belgian economy has proved to be more resilient than expected with a GDP growth of 1.4% in 2023 thanks to robust private consumption and a rebound in corporate investment. The GDP is expected to grow at a similar pace in 2024 and 2025 according to the latest macroeconomic forecast of the National Bank. According to the European HICP, inflation in Belgium was 4.5% in August 2024.

The general forecast for the investment climate in Belgium for 2025 is moderately positive. According to the European Commission, investment growth of about 1.5% per year is expected. This is supported by stabilising inflation and recovering consumer confidence, which is expected to boost private consumption and household investment. In addition, Belgium remains attractive to foreign investors thanks to its well-educated workforce, strong infrastructure and strategic location in Europe. Potential challenges for growth are labour shortages and rising public debt.

The European Central Bank lowered the interest rate in June 2024 from 4% to 3.75% and more recently again, in September 2024, to 3.5%. Also in September, the US Central Bank lowered interest rates for the first time in more than four years with a bigger than usual cut. The Federal Reserve reduced the target for its key lending rate by 0.5 percentage points, to the range of 4.75–5%. It is anticipated that these long-expected interest rate cuts will fuel the loan markets and M&A activity for Q4 2024 and into 2025.

Market Environment

In Belgium, on an average basis, deals worth between EUR25 billion and EUR35 billion are concluded annually. Looking back at 2023, the Belgian takeover market generally outperformed 2022 with an estimated value of EUR32 billion compared to EUR26 billion. This was largely due to the transactions surrounding the oil tanker shipping company Euronav (EUR4.2 billion), the exit by the Belgian federal government from BNP Paribas (EUR2.16 billion) and the acquisition of Degroof Petercam by Crédit Agricole (EUR1.55 billion). Globally, general M&A activity in 2023 was at its lowest in the past decade, suffering from a difficult financial environment reinforced by geopolitical uncertainties. This also led to a significant decrease in so-called “mega deals”.

The year 2024 was characterised by a slow start, which was somewhat expected given uncertainties around elections and leadership changes in Belgium, Europe, the United States, etc. However, there were also positive M&A drivers, such as decreasing inflation levels, interest rates being lowered by central banks, the energy shift, the growing importance of ESG, etc. There are even further silver linings, as it appears that the valuation gap between sellers and buyers is getting smaller, and private investors have continued to pile up dry powder waiting to be deployed when market conditions are deemed suitable. Despite an increase in failed or aborted processes, competition for the right assets remains intense.

Legal Developments

Civil Code changes

As part of a more general modernisation of civil law, the Belgian parliament adopted the new Book 5 of the Civil Code on contract law, applying to contracts entered into as of 1 January 2023. Book 5 increases legal certainty by codifying important principles of Belgian contract law developed over the years by case law and legal doctrine. At the same time, Belgian contract law has been modernised by the legislative recognition of certain legal principles aimed at protecting weaker parties.

While contractual freedom and the rule that agreements must be kept (pacta sunt servanda) remain cornerstones of Belgian contract law, Book 5 includes some limitations to such freedom or its negative effects, if deemed excessive, and introduces certain novelties.

On 1 February 2024, the Belgian parliament also approved a new Book 6 of the Civil Code, which introduces significant changes to the country’s tort liability regime.

Screening of Foreign Direct Investment (FDI)

While Belgium maintains an open policy towards foreign investment, and foreign investors can generally freely incorporate new companies and establish subsidiaries, the Belgian legislator has adopted an FDI screening regime which came into force on 1 July 2023. This made Belgium one of the last EU member states to adopt legislation designed to protect its national security, public order, and strategic interests from the impact of FDI. This forms part of a wider EU trend towards greater scrutiny of foreign investment and trade.

Transfer of significant assets in listed companies

On 27 March 2024, the Belgian parliament adopted a law introducing a new article in the Belgian Companies and Associations Code, requiring approval from the general meeting for a transfer of significant assets by listed companies. This law aims to increase minority shareholder protection and aligns Belgian company law with that of its neighbouring countries, where shareholder involvement is already required for significant asset transfers.

Belgian Mobility Law

The Belgian Mobility Law, adopted on 25 May 2023, implements the EU Directive 2019/2121 regarding cross-border conversions, mergers and divisions. This law introduces two new types of reorganisations: a cross-border de-merger by separation and a sister-sister merger.

Potential Hurdles and Solutions

Regulatory changes

Increased regulatory scrutiny has become a significant challenge in the M&A landscape. Governments worldwide are tightening foreign investment regimes and enhancing regulatory oversight, which can create deal uncertainty and increase execution risk. This heightened scrutiny often leads to longer approval times and more complex compliance requirements, potentially derailing deals or making them less attractive to investors.

To navigate these challenges, companies should adopt a proactive compliance strategy. Staying ahead of regulatory changes and ensuring thorough compliance can mitigate the risks associated with regulatory scrutiny. Additionally, incorporating geopolitical risk assessments into M&A strategies can help companies better navigate uncertainties and make informed decisions.

Market volatility

Market volatility has significantly impacted deal-making confidence in the M&A market, leading to lengthier M&A processes and “stop and go” dynamics. Economic fluctuations, geopolitical tensions, and rapid technological advancements contribute to an unpredictable environment, making it challenging for companies to commit to large-scale transactions.

Adopting a programmatic approach to M&A can provide more stability and value creation. This involves executing multiple small to mid-sized deals rather than relying on a few large transactions. Embracing technology, such as generative AI, can also enhance decision-making and integration processes, allowing companies to adapt quickly to market changes and maintain a competitive edge.

ESG

ESG concerns are increasingly influencing M&A transactions, with potential red flags in a target company’s ESG performance halting deal activity. The impact of ESG varies by region, with Europe placing higher importance on these factors compared to APAC and North America.

Implementing robust ESG due diligence processes is crucial to identifying and mitigating risks early in the transaction. Companies should integrate ESG considerations into the entire M&A life cycle, ensuring alignment with sustainability goals and enhancing the overall value proposition of the deal. This approach not only addresses investor concerns but also positions the company as a responsible and forward-thinking entity.