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The banking sector in Belgium has been reshaped since the financial crisis rolled through, with the collapse of Fortis Bank and state intervention into KBC Bank and Dexia, but now according to lawyers things are cautiously looking up."There is an increase of activity in M&As for the acquisition finance front in terms of volume, size and visibility of transactions - the biggest change seen over the last 18 months is M&A - and the general feeling is that the market and the economy are doing quite well," says one partner....

The banking sector in Belgium has been reshaped since the financial crisis rolled through, with the collapse of Fortis Bank and state intervention into KBC Bank and Dexia, but now according to lawyers things are cautiously looking up.

"There is an increase of activity in M&As for the acquisition finance front in terms of volume, size and visibility of transactions - the biggest change seen over the last 18 months is M&A - and the general feeling is that the market and the economy are doing quite well," says one partner.

One firm found 2010/2011 "extremely hectic, as private equity leveraged finance is coming back slowly and competing with capital markets and there are a lot more M&A"; and although leveraged financing has not hit previous levels, the same partner points out that "in the boom people were lending at five, six or seven times, now we see three or four times and a private equity house has to put more money in".

The market has seen a lot of refinancing and lending deals have quickened in pace: "Last year deals were done in four to five weeks, now they are done in two to three weeks," says a partner, adding that: "Banks are cash rich and Belgian banks are deposit heavy."

However, there are still some worrying concerns. "No one is at ease with what will happen with the bank," says one partner of Dexia, which has significant investments in Greece. "Fortis, taken over by BNP Paribas, is doing very well but it is a French bank, ING is doing OK but it is Dutch. The main banks are the foreign banks, Deutsche Bank and Citigroup, which is considering moving out of Belgium because activities are too small." The real estate sector, which depends heavily on the banks, is also raising some concerns.

Elsewhere, talk is of Basel III. On April 1 2011 the supervision authority was restructured into two authorities in the hope that it would improve regulation. "Basel III is an enormous development in regulations and a little revolution in financial supervision creating a twin peaks model which leaves some ambiguity; but the general focus is on consumer protection," says a partner. "On the regulatory, side it is a very exciting practice at the moment," says another.

Project finance is a relatively young and small sector in Belgium, having "only been discovered in 2008" according to one partner, and public-private partnerships (PPP) only kicked off in the country six or seven years ago. There is now "a full pipeline of deals, prisons, roads, schools, hospitals - due to budget constraints and because government understands that it makes sense to focus on what they want and leave rest to private sector".

Another area to watch is offshore development, which "has an attractive incentive regime," says one commentator. "There is financing in renewable energy, wind, solar (partly based on government's subsidies but they have been reduced so maybe there won't be any more), and wind farms off the coast of Belgium, partly European Investment Bank financed," says a partner.

One commentator concludes that "there is more work on project finance, which was like the monster of the loch ness for a number of years but now many projects have been launched".

The legal market in banking continues to be dominated by firms with strong positions in the London banking circuit, giving them access to work local firms cannot do. Local firms have been opening offices in London to try to tap into the flow of work.

"A relatively tight market," is one partner's verdict on the capital markets from mid-2010 to mid-2011 and this is especially true of the Belgian equity markets, which saw no significant IPOs and quite a few abandoned or postponed attempts."The market is still sometimes patchy and you have only small windows in which you can get the right pricing," explains one partner....

"A relatively tight market," is one partner's verdict on the capital markets from mid-2010 to mid-2011 and this is especially true of the Belgian equity markets, which saw no significant IPOs and quite a few abandoned or postponed attempts.

"The market is still sometimes patchy and you have only small windows in which you can get the right pricing," explains one partner. Healthcare and biosciences companies Ontex and Cardio3, agro-chemical company Taminco and Belgian's postal service BPost all pulled IPOs mainly due to the unpredictability of pricing on the stock exchange.

A number of partners also point out that the market has "cash rich" companies that are "hungry for transactions" and that capital markets deals "are still corporate driven rather than financial driven". "It is no longer a case of somebody without much money buying and selling something to somebody else with no money," says a partner.

In spite of this, the secondary markets and mid-market saw a respectable amount of activity, with a number of successful capital raisings through rights issues and private placements coming from the country's budding biotech sector, and some bigger deals, among them Nyrstar, which managed to raise over €490 million through a rights issue. Firms also handled deals that were alternative versions of IPOs. Cellerix, one lawyer explains, is "cash rich, considered an IPO two years ago in Spain and has now done a reverse takeover and therefore an IPO by putting shares into the already listed TiGenix; it is not however a public offering".

The debt capital markets were a very different story, with the lack of easy financing from banks pushing companies into the markets. "It was a very busy period, a lot of transactions, bond issues, high yield bond issues, exotic type transactions for example the first hybrid bond issue by a corporate with equity capital treatment," says one partner. Firms handled a number of high-yield and convertible bond issuances, the most significant being for UCB, Telenet, Delhaize, Fluxys and Ontex.

"High-yields are a new trend, they will continue for the next few months while banking is still stretched, and there is a lot of US debt trying to find long term funding in the EU market," says a partner. Basel III is also driving trends: "the debt markets are not quiet for various reasons and this will remain the same if only for Basel III; for example corporate bonds are treated better than corporate loans, retail investors like to invest in corporate bonds, there is a clear appetite for it," says a partner.

The trends led some to question their impact on the corporate environment, with one partner asking: "To what extent does this give leverage to borrowers? It is still not as convenient as straight bank financing."

On the legislative side, there was movement, despite there being no elected government in place. One much talked about piece of legislation in the pipeline is designed to introduce a covered bond framework in Belgium. "Belgian banks are at a competitive disadvantage and can't finance RMBS and loans as efficiently," says one partner, "there is no government, but we expect a law in the very near future, after December 2011, and after that we will see a lot as there will be a backlog of cases". Regulations for Real Estate Investment Trusts (REIT) were also recently relaxed through Royal Decree. The new regulations allow REITs to hold more debt and to facilitate share issues and in 2011 set a series of deals in motion.

M&A has been a very mixed bag and opinions from partners range from very positive to quite negative."Fairly dislocated and unpredictable, the deal volume was much lower than in 2005, 2006 and 2007, there was less private equity activity, although there are a lot of funds that would buy certain assets if the debt financing came up....

M&A has been a very mixed bag and opinions from partners range from very positive to quite negative.

"Fairly dislocated and unpredictable, the deal volume was much lower than in 2005, 2006 and 2007, there was less private equity activity, although there are a lot of funds that would buy certain assets if the debt financing came up. Sellers are wary of selling as the valuations are still a bit low," says one partner.

However another firm saw "a lot of activity in the media sector and a lot in the FIG (financial institutions group) sector, in renewable energy and in the private equity world". "A very busy year for us on M&A, very active throughout the year mainly on public M&A and private M&A and not much private equity, although in the last few months a few more potential transactions," says another partner.

A another firm says: "Private equity is really heating up, for example GIMV, listed on the Belgian stock exchange, is getting more active, Gilde closed last week [1st quarter 2011] - banks are more prepared to lend money and there are more and more companies up for sale."

This range of views is a result of two things: a relatively active mid-market sector with buy-outs among SMEs (small and medium enterprises) and consolidation in the bio-pharmaceutical sector, and a growing list of mandates and pipeline projects fuelling optimism that the market will begin to buzz by the end of 2011. This view is also dependent on whether the situation is being compared to 2006, or to 2010, which "was not a pretty year" says one partner.

A few things are a bit more certain. Public M&A and public takeovers have been pretty slow while private equity only started to pick up in 2011.

According to one partner: "Private equity houses are now looking at their files, some have changed strategy, not taking whole share capital but taking over chunks with others, some are now setting up funds and defining strategies." Another agrees: "The second half of 2011 will be busier; a number of PE portfolios are reaching the end of their normal five to six year holding cycle and 2004-07 was a busy acquisition period."

The market did see a number of very large Europe-wide M&A and restructurings. Among them for Solvay (an example of a cash rich company) on its acquisition of Rhodia, the restructuring of Truvo, the sale of SBS Belgium by ProSiebenSat.1 and an acquisition by Groupe Bruxelles Lambert. There was also a noted increase of interest from Chinese parties companies in all areas of industry.