Spanish private equity flourishes as Italian market cools

The region replicated 2016's healthy buyout activity in the first 11 months of 2017. Aggregate value reached €16.43bn during the period, according to unquote" data – marginally up on the €16.34bn witnessed in the same period the previous year. However, countries within the region performed differently throughout the year. Italy saw a drop in deployed cash, while Spain had a buoyant year for both investments and fundraising.

As of the end of November, there were 60 buyout transactions in 2017 in Italy, with a total of €5.87bn of capital deployed. While the country improved its performance in volume terms compared with the 58 deals inked in 2016, in aggregate value the industry witnessed a fall to almost half the €9.6bn recorded in the same period the previous year.

"I don't yet see in Spain the prices or high leverage we saw in 2005. On the other hand, I now see more disruptive elements that might change many of the current market dynamics" – Juan Luis Ramirez, Ascri

This trend is driven by a lack of large-cap deals in excess of €500m. Whereas GPs completed eight large deals in the whole of 2016, totalling €9.7bn in value terms, this year, Italy has witnessed only one such deal: The Carlyle Group's €520m acquisition of an 80% stake in artisan pastry and ice-cream maker Irca in June. However, the lack of larger Italian deals is partially balanced out by an 18% increase in volume terms and 43% in value terms for deals below the €500m mark. There were 59 transactions in this value range accounting for an aggregate €5.3bn, according to unquote" data.

Furthermore, the Italian private equity industry can look with hope to 2018, having enjoyed a 54% increase in fundraising during 2017. In the first half of the year, €1.2bn of capital was raised, compared with €775m in the same period in 2016, according to the Italian private equity and venture capital association Aifi.

The traditional problems of the local Italian fundraising industry persist, with just 21% of commitments coming from outside the country. Drilling down into the makeup of LPs, family offices and private individuals accounted for 48% of the capital raised, while pension funds totalled 12%, funds-of-funds 8% and insurance companies 2%.

"In the first half of 2017, the amount raised grew, especially thanks to a new public GP," says Aifi CEO Anna Gervasoni. "If we exclude it, fundraising remains the most difficult part of private equity activity in Italy. For this reason, we are working together with the institutions in order to boost it and increase the contribution of pension funds and insurance companies."

Spanish buyout bonanza
Unlike Italy, Spain saw a buyout bonanza in 2017, according to unquote" data. Buyouts in the country totalled an aggregate value of €9.35bn in the 11 months to November 2017, more than double the €4.03bn seen in the same period of 2016. Moreover, the increase in value terms came against a backdrop that saw a more modest increase in dealflow from 31 transactions in the first 11 months of 2016 to 38 transaction in the first 11 months of 2017.

The total value of Spanish buyouts surpassed even the record-breaking €7.2bn in 2007, and was fuelled in large part by the large-cap space. "International sponsors are powering the larger end of the market," says Juan Luis Ramirez, chair of the Spanish private equity association Ascri.

Indeed, there have been six deals valued at more than €500m, representing €5.5bn in value terms, all six of which were led by international GPs. In contrast, Spain witnessed only one large-cap deal in 2016, with Cinven acquiring travel service provider Hotelbed Group for an enterprise value of €1.16bn.

Nonetheless, the current landscape of the industry within the country differs from the pre-crisis years, according to Ramirez. "I don't yet see in Spain the prices or high leverage we saw in 2005," he says. "On the other hand, I now see more disruptive elements that might change many of the current market dynamics. Hopefully the growing trend will remain, as Spain continues to catch up with its neighbours; more international teams will look at the larger deals, and the middle market will perform above the 75 transactions mark."

On the fundraising front, the first semester of 2017 confirmed the strong activity witnessed in 2016, which itself saw €2.27bn raised. According to Ascri, domestic GPs raised €1.13bn in the first six months this year.

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