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Spanish M&A boom pauses for breath

  • Deal volume, value in YTD much lower than 2017, 2018
  • Opinion divided on extent that post-recession boom will continue

A pause in Spain’s revitalised M&A market has provoked discussion about whether the country is entering a new cycle, according to panelists and attendees at Mergermarket’s Spanish M&A and Private Equity Forum on 13 June.

A show of hands among attendees revealed a plurality of dealmakers are concerned that the post-recession boom the country has been experiencing could be coming to an end. The rest of the audience was evenly split between optimists who think the good times will continue to roll and those who declined to vote for either option.

M&A boomed during 2017 (466 deals, EUR 43.5bn) and 2018 (534 deals, EUR 89.8bn), but deal volumes and value have since eased back into a more familiar range this year. There have been 138 deals so far this year, worth a combined 15.2bn, according to Mergermarket analytics.

Spanish politics could play a key role in deciding which route the country goes down, panelists said. Acting Prime Minister Pedro Sanchez won a general election on 28 April, but his Socialist Party failed to gain a majority. He has yet to form a coalition government and is talking to populist left-wing party, Unidas Podemos, as well as various regionalist parties.

Sanchez campaigned for higher taxes. The Spanish Confederation of Business Organizations (CEOE) is concerned about the government taxing legitimate businesses instead of fighting the submerged economy, its chairman, Antonio Garamendi said.

High levels of government debt - 98.1% of GDP - is also a risk factor for the economy, as would any moves to reverse the flexibility of the labour market, Garamendi said.

Catalonia could also be a risk, he said. The regional government of the autonomous community made a unilateral push for independence in 2017. The leaders of the revolt are facing trial in Madrid.

More generally, Brexit will hurt Spanish tourism, and the America-China trade war will have a ripple effect globally, Garamendi said. More specifically, Europe has also been too slow to try to dominate the digital economy or next-generation batteries, he said.

On the other hand, interest rates remain low and there is ample liquidity to serve M&A, Cuatrecasas partner Victor Xercavins said. This year’s lack of megadeals paired with a slight slowdown in transactions overall has not impacted the investor interest in the Spanish market, which remains strong. Juan Orbea, Santander’s [BME:SAN] head of M&A for Iberia agreed, adding that he remains positive for the rest of the year.

Mid-market and tech in focus

Such high levels of liquidity have led to rising prices across the country’s mid-market, Fernando Trueba, managing partner of Corpfin said. Meanwhile, competitive auctions with few participants and bilateral deals are becoming more common, Eduardo Muñoz, Santander’s head of midmarket M&A for Iberia said.

If there is a change of sentiment that impacts Spain’s market dynamics, mid-cap companies that have received private equity investment could suddenly find their balance sheets over-leveraged, Oscar Fernandez, control and financial services manager for retailer El Corte Ingles said.

Spain’s mid-market is also ripe for shareholder activism, Sergio Galvis, a partner at Sullivan & Cromwell said. He warned that listed companies should pre-emptively prepare their defence strategies before they are challenged.

In the longer term, moving to a more sustainable economy; better government management of its budget; digitalisation and modernising the education system are all challenges the country faces, Garamandi said.

Away from its traditionally active sectors, Spain is well-placed to position itself as a key technology player, Cuatrecasas partner Alvaro Bourkaib said. The country has a pool of talent and salaries are low compared to similar countries, making the opportunity to invest more appealing, he added.

Spain’s historical, linguistic and cultural links with Latin America will additionally help the tech sector, Konecta director Ramon Ros said. Latin America is a great opportunity for Spanish tech companies, agreed Antonio Gimenez de Cordoba, partner of Seaya Ventures.

Tech deals have accounted for just 1.6% of Spanish M&A in the year so far, compared to 2.9% for the same period last year. By contrast, the energy sector remains the centre of the market, with 21.4%.

There remains plenty of activity in the renewable sector, Renovalia CEO Jose Manuel Olea said. Regulated assets are still perceived to be low risk, he said, adding that the perception of risk on non-regulated assets will probably fall as greenfield projects come online.

Rupert Cocke Spanish Bureau Chief Mergermarket

Rupert Cocke has been the Acuris Spanish bureau chief since 2005. He splits the week between Madrid and Barcelona. Rupert has more than 20 years of experience as a financial news reporter. He began to specialize in Spanish M&A in 2002 when he joined the group as a senior reporter in London. He previously worked with Dow Jones Newswires in London and Madrid, where his work was regularly featured in the Wall Street Journal Europe. He has a Philosophy degree from the University of Leeds. As bureau chief, he studied for an MA in Media Management Practice from Bournemouth University's Centre for Excellence in Media Practice in his spare time, successfully completing this degree in 2015.

Rupert Cocke Spanish Bureau Chief Mergermarket

Rupert Cocke has been the Acuris Spanish bureau chief since 2005. He splits the week between Madrid and Barcelona. Rupert has more than 20 years of experience as a financial news reporter. He began to specialize in Spanish M&A in 2002 when he joined the group as a senior reporter in London. He previously worked with Dow Jones Newswires in London and Madrid, where his work was regularly featured in the Wall Street Journal Europe. He has a Philosophy degree from the University of Leeds. As bureau chief, he studied for an MA in Media Management Practice from Bournemouth University's Centre for Excellence in Media Practice in his spare time, successfully completing this degree in 2015.

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