Private capital is beginning to see the light at the end of the tunnel, following the paralysis of the last few months, and is optimistic about the reactivation ahead of the second half of the year. Portfolio and middle market (mid-sized transactions) purchases anticipate increased dynamism.
Private capital is beginning to see the light at the end of the tunnel, following the paralysis of the last few months, and is optimistic about the reactivation mid-sized transactions. This is one of the conclusions reached by a group of industry representatives who, convened by elEconomista Capital Privado, discussed current market trends.
In this regard, Bosco de Checa, Corporate and M&A partner at Allen & Overy, recalled that during the first quarter of the year, deals that had been initiated in 2022 have been closed. "We are now positive, we are being approached and people are now asking questions", he admitted, recalling that there is still a major adjustment to be made to sellers' price expectations in order to reactivate the market. Ignacio de Garnica, Private Equity partner at PWC in Spain, pointed out that while large transactions continue to be at a standstill, smaller ones are being undertaken, such as the so-called add-ons -acquisitions of small companies that are added to other companies to complement them-. "The funds that engage in these types of transactions are very active", he admitted, recalling that there are key sectors, such as energy, infrastructure and education, in which the market remains active.
This same idea was endorsed by Yolanda López de Segura, Deputy Director of Investment at Cofides, who stressed that this situation is also linked to the increase in investment and disinvestment periods by the funds. "One should bear in mind that debt funds are now more competitive than they were a few years ago. They have adjusted prices", she acknowledged.
Ignacio Allende, partner at KPMG in Spain, followed suit, adding that "some deals are already starting to be reactivated". In this regard, he raised the issue that the mid-market -mid-sized transactions- has a more optimistic view at the moment than a few months ago, although he pointed out that they are being more selective as there is the handicap of the difficulty of determining what the structural ebitda is -a measure that is usually used to determine the value of the company object of the transaction- because, in his opinion, some companies present a negative weight derived from the high energy prices during the past year while others bring a positive tailwind that also influences this indicator.
José Zudaire, CEO of SpainCap, recalled that European funds continue to arrive, such as the €1000 million for companies of the Cofides group, while international firms are establishing themselves in our country. "We are seeing proposals in the pipeline, but also some processes that are now becoming chronic", said Elena Aguilar, partner at CMS Albiñana & Suárez de Lezo, although she pointed out that "there are reasons to be optimistic" despite the unusual nature of the current market situation, while recalling that the venture capital segment has grown very significantly and is more buoyant. Another trend that has been observed in recent months, according to the different industry stakeholders, is the extension of the deadlines for raising capital by different funds.
As a leading depositary in the Iberian market, Óscar Mateos, Director of Business Development and Customer Support at Cecabank, noted that the firm continues to grow in the depositary of private equity and 'fintech' customers. The first quarter was a good one for wealth management, having recorded results that are almost back to the levels seen before the Ukrainian invasion. "We expect the trend of the first quarter to continue, with a high rate of net subscriptions in investment vehicles. However, much will depend on the situation in Ukraine, the behaviour of inflation and the actions of central banks" as to how the market will behave in the second half of the year.
The first quarter, in his words, "has been good in terms of asset management, having recorded results that are almost back to the levels seen before the Ukrainian invasion". However, notes Mateos, "the latest data reflect a trend towards the marketing of conservative, low-complexity products, as well as lower fees". As a result, they observe that revenues are not recovering at the same rate as equity.
The numbers for the first quarter
SpainCap recently released the figures for transactions for the first quarter of 2023, which reflect the slowdown in the market, during the SpainCap Annual Congress held in Barcelona, under the title Capital for a Sustainable Future. The private equity and venture capital sector reduced its investment activity by 29.3% during the first quarter of the year, spending €2,172 million in 219 transactions, €900 million less than in the same period of the previous year. The figure is, however, only €71 million below 2019, marking the third-best quarterly figure since 2016.
The volume of venture capital and private equity investment in Spain in 2022 surpassed all previous record highs: 9,238 million euros in 958 investments. International funds posted record investments in Spanish companies: 7,406 millions and they closed up 15 megadeals (operations that they exceed the figure of 100 millions). National private funds invested €1,685 million in 592 investments and national public funds totalled €147 million in 144 investments.
The middle market (investments between €10M-€100M) accounted for 33% of the total volume invested in the Spanish market, with 114 investments undertaken over the course of 2022. Divestment (at cost price) totalled €1,950.6 million in 437 divestments. New resources raised by national private entities reached a volume of €2,620.4 million in 2022. Despite the current environment marked by macroeconomic uncertainty, the industry continues, therefore, to undertake transactions and there is sufficient liquidity to continue supporting and promoting SMEs and startups, as advanced by the association.
