Southern Europe eyes new year with caution after mixed 2015

The year may not be over yet, but the private equity industry in southern Europe has cause to start celebrating. At 177 transactions recorded between January and November 2015, the figures are not as high as the 233 deals recorded over the same period last year. But aggregate value was 43% higher, going from 2014's €11.3bn to 2015's €16.1bn.

While this might signal the region's shift to larger deals, in reality the uptick can be attributed to the whopping €5.3bn merger between Warburg Pincus- and General Atlantic-backed Santander AM and Pioneer Investments in April. Furthermore, Italy produced the second and third largest southern European deals so far in 2015: the Advent-, Bain- and Clessidra-backed €2.15bn takeover of ICBPI in June and Permira's €1bn exit of a 12% Hugo Boss stake in March. The large-cap deals helped push aggregate value in Italy from €4.5bn in January-November 2014 to almost €12bn this year.

As unquote" noted at the time, ICBPI's private equity acquirers were won over by changes in banking regulations led by Italian prime minister Matteo Renzi. The update, sparking investor appetite in the country's banks, comes as part of a business-friendly reform agenda including more forgiving taxation and lower barriers for pension managers seeking to invest in private equity funds. The success story is a double-edged sword, as unquote" heard from local players during the Italia Private Equity Forum in November: the prosperity brought about by Renzi's administration will likely lead to a competitive landscape of swelling valuations.

"2015 has been a satisfactory year for our investments in southern Europe," says Mauro Moretti, founder and managing partner at Three Hills Capital Partners. "All our portfolio companies are experiencing double-digit growth and low interest rates help them push organic growth investments." However, GPs would do well to keep leverage in check amid the current debt-rich setting, according to Moretti. While GDP figures may have moved out of the red in both Italy and Spain, surprises on the macroeconomic front should not be ruled out. "More and more, we see how macroeconomic factors impact consumer spending and the willingness of companies to push for extraordinary projects," he says.

Spanish slowdown
As Italian players reap the fruits of political stability, their Spanish counterparts appear to be holding their breath ahead of a potentially disruptive presidential election in December. With the latest polls promising ruling Partido Popular four more years in power, unquote" data found deal count in the country dropped from 102 transactions in January-November 2014 to 73 during the same period this year. The slump was even more pronounced in aggregate value, which plummeted from €6.7bn to €2.5bn.

Furthermore, the increasingly unsettled political environment has seen a slowdown in fundraising. During recent talks with unquote", local practitioners intimated that foreign LPs were distancing themselves from the country after rushing into Spanish funds earlier on in the year.

Seemingly immune to the trend, pan-Atlantic firm Telegraph Hill Capital (THCap) was the latest GP to brave the fundraising market with a €35m second venture vehicle in November. Varun Dalal, a principal at the firm's Barcelona offices, believes 2015 was a strong year for the Spanish venture capital ecosystem: "This year, there are expectations for VC tech startup funding to hit €500m and exceed the combined 2013 and 2014 figures. Most of the money is going to e-commerce, marketing and on-demand assets but we're also seeing interesting, disruptive companies such as Captio and Typeform."

However, looking ahead to 2016 paints a slightly gloomier picture. "We have recently seen less early-stage funding in the US and next year we expect things to slow down a bit in Spain as well," adds Dalal. "Things will get harder for startups with a weak business model." According to the THCap principal, a stronger base of series-A and series-B investors will be key for those Spanish startups with the potential to expand abroad next year.

Often overshadowed by southern Europe's two main hubs, Portuguese private equity nevertheless deserves some of the spotlight in 2015. After hovering around the €100-200m aggregate deal value mark since 2011, local GPs delivered deals worth €1.2bn between January and November 2015, helped along by Ardian's €300m ticket for a 50% stake in motorway operator Ascendi in June and Cabovisão's change of ownership from Altice to Apax France in September.

Meanwhile, Greece has yielded a single deal so far this year, albeit an eye-catching one: BC Partners' €500m takeover of pharmaceutical giant Pharmathen in June. As the country prepares to turn the page after a turbulent 2015, foreign eyes are locked on opportunities in the real estate and venture capital space that are emerging as the country continues to solve its financing woes.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Send to  

• Topics
• Investments
• Southern Europe
• Buyouts
• Early-stage
• Expansion
• Buyout
• Southern Europe
• Spain
• Italy
• Portugal
• Greece
• Top story
• Warburg Pincus
• General Atlantic
• Advent International
• Bain Capital
• Clessidra Capital Partners
• Permira
• Ardian (formerly Axa PE)