Gone are the harshest moments of the pandemic, in which mergers and acquisitions (M&A) activity came to a halt due to the health situation and the collapse of the world economy due to lockdowns. The year 2021 has been consolidated as that of the recovery of corporate operations in Spain, with important transactions such as that of the waste giant Urbaser to the Platinum fund, the IFM takeover of Naturgy, the controversial entry of the CVC fund into LaLiga or the purchase of 49% of Reintel (Red Eléctrica’s fiber subsidiary) by KKR, among others.
The Spanish companies have kept the pulse during the pandemic thanks to the oxygen balloon provided by the credits endorsed by the State and ERTE, with the exception of those that carried out their activity in the sectors most affected by the coronavirus (such as tourism or restaurants). Thus, national groups have shown their resilience in this time of coronavirus, attracting a significant number of financial investors of very diverse profiles to different sectors. This situation has consolidated Spain as one of the favorite destinations for international investment, which has leading companies in different sectors that are also cheaper than in other European markets where foreign funds have been looking for opportunities for years.
In the words of Enrique Gutierrez, Managing Partner of Financial Advisory of Deloitte, “From the point of view of M&A, 2021 has been a very active year in the Spanish market. Everything seems to indicate that we will end the exercise with levels higher or very close to those registered in 2019, which shows the good moment of the sector, supported by the existing liquidity and the positive impact of the vaccination process on the evolution of the pandemic. 2021 has confirmed the trends seen in the previous year such as the increase in transactions driven by the venture capital [fondos especializados en ‘startups’] and the confirmation of the great investment appetite of international funds in Spain ”.
In this context, experts agree that the ropes are in place to maintain the level of activity in corporate operations by 2022 and even beat forecasts. According Álvaro Revuelta and Jorge Ramos, co-heads of Citi Investment Banking for Spain and Portugal “After a record year such as 2021, at Citi we are also optimistic for next year in which we expect high levels of activity to continue. Although there are uncertainties such as energy costs, inflation or possible rate hikes, we anticipate that investors will keep looking for companies to invest in”.
At the moment, there are several large transactions in Spain planned for 2022, such as the sale of Cepsa’s chemical business for 3,000 million, that of the fertility giant IVI-RMA for more than 1,500 million or the sale of a minority stake in Avatel for more than 500 million, among others. Angel Arevalo, Global Advisory Manager of BBVA Corporate & Investment Banking, justifies the reasons for these good expectations on several key points.
On the one hand, “the strong liquidity in the market, with a lot of appetite on the investor side, and a growing opportunity cost given possible expectations of relevant inflation in the coming months, in addition to some solid financing conditions, both in the banking and institutional segments ”. To this must be added, according to Arévalo, “the recovery of certain sectors slightly lagging behind in 2022, given expectations of normalization in the macroeconomic scenario ”.
Regarding the most attractive industries for investors, the head of Deloitte’s Financial Advisory points out that “we will continue to see great dynamism in areas related to technology in a broad sense, health or consumption, which will be the sectors that arouse the most interest from investors and investment funds private equity. Additionally, we identified an important consolidation potential in certain niches of some sectors such as services, transportation or education”.
To this situation must also be added the work carried out by the large Spanish companies, which, once they ensured their liquidity during the toughest moments of the pandemic, have been encouraged to carry out transactions abroad. Citi confirms this trend and adds that “low financing costs will continue to allow large Spanish companies to continue making acquisitions outside of our country.”
On the other hand, the coronavirus pandemic has caused Spanish companies to immerse themselves in important strategic reflections on their future plans, generating corporate operations through the rotation of non-strategic assetsThis has been the case with the sale of Ferrovial Servicios’ environment business to the German group Schwartz, the divestments undertaken by Telefónica or the transfer of ACS’s industrial business to the French Vinci. For next year, several are expected, such as the sale of the BBVA depository for 500 million or the transfer of Naturgy’s businesses in Chile.
Regarding this, the global head of Investment and Corporate Banking at BBVA argues that “on the side of the corporates, we will see numerous divestitures and asset segregation, within a process of redefining business structures, in order to face the future challenges that companies face in different sectors. It will be very relevant to find the best investor for each type of business, which will cause these spin-off processes, to concentrate efforts on those activities core of each company. These processes will also allow the value of certain assets to emerge and a better definition of future strategy ”.