Spanish fundraising offers hope amid lacklustre dealflow

Amedeo Goria
16 August 2016

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Spain witnessed a 25% plunge in buyout activity during the first half of 2016. This was, however, offset by a 44% increase in fundraising by domestic fund managers, resulting in a positive mood on the ground as H2 gets underway. Amedeo Goria reports

Looking at unquote" data figures for Spanish private equity and venture capital activity, Spain witnessed a plunge by 25% in value and 24% in deal volume during the first half of 2016. The first semester saw Spanish GPs totalling 47 transactions with €2.7bn invested. These figures mark a drop compared to 62 deals and €3.6bn of total value reached in the last semester of 2015.

Against this backdrop, the industry seems to suffer from the protracted political uncertainty on both a Spanish and a European scale. On the domestic side, the uncertainty is the result of the recent general elections, first in December 2015 and lately in June 2016, while on the international side it follows the recent international events, including the Brexit referendum in June and the upcoming US general election in due course.

Despite the low volume of dry powder, the Spanish market shows great attractiveness due to the low competition for available deals and the positive trends displayed by the country's economy" - Juan Luis Ramírez, Portobello Capital

In terms of buyout activity, Spain-focused GPs executed 21 buyouts during H1 2016, totalling €2.6bn of capital deployed. Although the figures mark a clear drop if compared with the €3.5bn aggregate value and 30 transactions of H2 2015, they also represent an increase compared to the €1.1bn put to work during the first half of 2015. "Despite the low volume of dry powder, the Spanish market shows great attractiveness due to the low competition for available deals and the positive trends displayed by the country's economy," says Juan Luis Ramírez, founding partner at Portobello Capital.

Drilling down into the figures, Spain was home to just one deal valued in excess of €500m in the first half of the year compared to none in H1 2015, with Cinven's acquisition of travel service provider Hotelbeds for €1.2bn. Nonetheless, the €50-500m middle market seemed to be the real engine that kept powering the country's activity, totalling eight transactions with €1.15bn in aggregate value.

Compared to the previous semester, the mid-cap segment fared reasonably well value-wise with a 4.1% dip, although it witnessed a more marked drop of 33% in volume terms. At the other end of the market, small-cap transactions (€10-50m) were also down: GPs operated 12 deals at the smaller end of the market (29% less than in H2 2015) for an overall €278m in value (a 39% drop from the previous semester).

Venture woes, fundraising hopes
At the same time, venture capital investments amounted to an aggregate value of €240m spread across 34 transaction for the first half of 2016. Compared to the previous semester, the figure marks a 45% and 17% dip in terms of value and volume, respectively. The number of transactions below the €5m mark amounted to 60% of the total activity in that space, with domestic VC houses scoring 31 transactions worth €203.3m in combined value. On the other hand, international VCs took part in three co-investments, totalling €36.7m in value.

Although this gloomy backdrop doesn't exactly paint a picture of unmet opportunities, Spain's fundraising activity shows that investors remain optimistic about the country's future prospects, with a few caveats.

According to a survey from Spanish private equity, venture capital and private debt association Ascri, funds targeting the country raised €1.39bn during the first half of the year. Although the figure marks a 6% drop compared to 2015, domestic GPs saw a 44% increase in funds raised compared to last year, attracting total commitments worth €1.1bn. "There have been essentially three funds that announced closings this semester - one final close and two first closings," says José María Muñoz, senior partner at MCH Private Equity. "In reality, since 2014 several domestic funds have been raising after many years in which no funds had been raised and this will continue throughout 2016 with some tail-end in 2017."

Muñoz told unquote" that total funds raised this year are nevertheless expected to be 30% below the values reached during the peak years between 2005 and 2008. "In my opinion, the recent fundraisings will continue to contribute to higher activity. Therefore, the second half of the year is likely to be better. Nonetheless, fundraising remains challenging for domestic managers and the upper end of the market seems more difficult and challenging given the scarcity of deals, which is also reflected by higher prices in this segment," says Muñoz.