International appetite for Spanish deals soars in H1

Spanish private equity activity recorded a strong first half of the year, reaching one of the highest levels on record in terms of aggregate volume and value, according to the latest report published by Ascri, the local industry body.

The country saw 26 buyouts completed between January and June 2018, worth a total of €2.3bn, and 59 growth capital transactions worth €348m, according to Ascri. The aggregate value of all deals recorded by the asset class over the course of the semester reached €2.9bn, maintaining the same high levels seen in the corresponding period of 2017, an exceptionally busy year in terms of dealflow.

The mid-market space was particularly active, with a total of 32 transactions valued at €961.4m, up 10.6% on the total value recorded in H1 2017 and marking a record high for the price range.

A series of factors contributed to the vitality shown by the industry, including abundant liquidity, increased financial stability and favourable economic prospects fuelled by positive macroeconomic indicators.

Furthermore, the increasing appetite shown in the past few years by international funds for Spanish companies strengthened during the semester and became a key feature of the country's private equity landscape.

According to Ascri, GPs from outside Spain accounted for more than three quarters of the total capital invested in the country. In the first half of the year, €2.3bn of the total €2.9bn invested in the industry was deployed by international funds, while €635.3m was provided by local players.

International dominance
As is typical of young and developing markets, the dominance of non-Spanish funds is particularly prominent at the upper end of the mid-market and in the large-cap space. According to Ascri's report, the four largest deals closed in the first half of 2018, valued at an aggregate of €1.8bn, were inked by non-Spanish GPs.

One such example is Cinven, which has a longstanding presence in Spain and currently has four Spanish companies in its portfolio, in addition to a local office that it opened in 2015. The firm closed the €450m acquisition of agri-food business Planasa in January and has also been active on the divestment front, having recently exited Ufinet in a deal that generated a 6x return, 61% IRR and proceeds of €1.1bn.

"Spain's macro fundamentals have been very robust," says Cinven principal Nacho Garcia-Altozano. "After expanding at more than 3% per annum over the previous three years, the economy is projected to grow at a robust, although more moderate, pace in 2018 and 2019. On top of this, there is quite a sizeable universe of good companies with very talented management teams and either a good international track record or strong ambitions to pursue international growth."

The high percentage of SBOs within exit figures is a sign of a market becoming more mature and developed, where local and international investors are gaining confidence" – Miquel Martí, Clearwater International

While investment activity was abundant in the first semester of the year, the Spanish market saw a steep decline on the exit front, where the aggregate value of divestments dropped to €609m from the figure of around €2.1bn recorded in the corresponding period of 2017. However, the volume of exits saw a 21% increase to 146 transactions. Furthermore, 65% of the exits were SBOs, while only 23% were trade sales.

"The contraction can be considered a cyclical and temporary downturn in a market that has proven to be healthy and rich in opportunities, with a positive supply-and-demand dynamic," says Miquel Martí, partner at Clearwater International. "In addition to this, the high percentage of SBOs within those exit figures is a sign of a market becoming more mature and developed, where local and international investors are gaining confidence and are ready to sell their assets in an attractive environment."

A moderate decrease was also recorded in fundraising activity, which experienced a relatively slow start to the year and saw a 35% decline compared with H1 2017, dwindling to an aggregate value of €783.6m. However, several GPs are expected to close their funds in the second half of 2018, including Sherpa Capital and Black Toro, which are both raising their third vehicles.

"The slowdown should not be considered a turning point in the Spanish PE market, but a temporary trend purely related to the fundraising cycle of domestic players," says Ascri president Miguel Zurita. "The sentiment is positive in the sector and several firms will be wrapping up their fundraising in the second half of the year. This will very likely bring the data for the whole of 2018 to the same high levels recorded by the industry in 2017."

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