Portugal boosts southern Europe's 2016 resurgence

Southern Europe saw an aggregate €18.8bn invested in buyouts in 2016, a 31% rise from 2015's €14.3bn. This was in no small part driven by a considerable upswing in Portugal, according to figures in the unquote" Annual Buyout Review.

Portugal's buyout market rose by 40% in volume compared with the previous year, while the total capital injected doubled. Although those seven buyouts worth €1.1bn are dwarfed by Portugal's regional neighbours Italy and Spain, the figures are the highest for Portugal since 2008, when 12 buyouts were inked worth €1.6bn.

"Portugal continues to be relatively slow in absolute numbers," says Jose Maria Muñoz, senior partner at MCH Private Equity. "The increase in relative terms reflects the extremely low starting point. However, the relative improvement probably reflects the attractiveness of the market in relative valuation terms, considering the state of the economy. It is one of the few markets where a bargain sentiment can exist on the side of investors, as was the case for Spain five years ago."

The industrials sector is well-poised for a recovery based on productivity gains and salary reductions as a result of the crisis that made Portugal a good location for export-driven industries" – Jose Maria Muñoz, MCH Private Equity

The industrials sector, which currently represents 23.1% of the country's economy according to the International Monetary Fund, led this trend with four deals closed in 2016 and represented 98.3% of total capital injected. "The industrials sector is well-poised for a recovery based on productivity gains and salary reductions as a result of the crisis that made Portugal a good location for export-driven industries," says Muñoz.

The sector witnessed the two largest buyouts inked in Portugal since the financial crisis in 2007-2008: the €456m management buyout of speciality crop protections manufacturer Sapec Agro Business led by Bridgepoint in November 2016 and the Carlyle-led acquisition of plastic packaging producer Logoplaste executed in June 2016, which was reported to value the company at around €660m.

Lusitanian reawakening
The country's economy regained momentum in 2016 according to the Istituto Nacional de Estadística, with €179bn of GDP equalling a 1.4% growth compared to the previous year. Portugal is showing signs of emerging from the gloomy backdrop of 2012-2014 when the economy constantly posted negative rates. "The country has taken hard measures to control the public deficit, but some drags still exist," says Muñoz. "In any case, as for Spain, Portugal is benefiting from a more positive external environment, significant adjustments in the private sector (namely a drop in salaries), productivity gains, strong tourism and a recovery of the real estate cycle."

Against this backdrop, Portugal is increasingly attracting deal-makers that are identifying opportunities in a European market with low levels of competition and entry prices. "With time, prices will start to converge to European levels, particularly in larger transactions," he says. "Having said that, right now, valuation levels are moderately attractive due to lower competition than in other markets. Portugal, as a relatively small economy, has limited deal supply and demand: not too many players, not too many deals. A small increase in funding can affect prices significantly."

And 2017 figures are expected to reveal a further positive curve. Following the first transaction of the year – the minority acquisition of metal equipment producer Grupo Catari by private equity house Inter-Risco – the negotiation for the acquisition of Novo Banco is expected to reach a conclusion this year. Currently, the auction process is reported to value the business at up to €4bn and involves Aethel Partners, Apollo Global Management and China Minsheng Financial Holding.

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