Spanish GPs navigate tough fundraising, deal-making environment

Several Spanish vehicles were launched last year and are expected to wrap up their fundraising in 2020, but might choose to postpone their closings.

MCH Iberian Capital V was launched in April 2019 with a €400m target and has recently held a first close on €200m. It invests in mid-sized companies headquartered in the Iberian peninsula, generating EBITDA of €5-15m, and deploys equity tickets in the €20-50m range.

"Despite the coronavirus emergency, our fundraising is proceeding at a good speed and we have already raised half of the fund's total capital," José María Muñoz, founding partner of MCH, tells Unquote. "However, some discussions with LPs have been put on hold and we expect our fundraising to continue at a slower pace in the coming months. This will probably result in a postponement of our final close, which was originally planned for the end of the year."

Another fund on the road is Magnum Capital III, which was launched with a €450m target in December 2019. The vehicle has already enough commitments to make its first investments but forecasts fundraising to take longer than expected given that some investors are delaying their decisions, Unquote understands.

Spanish lower-mid-market investor Suma Capital is raising its second growth fund, Suma Capital Growth II, which was launched with a €125m target and held a €65m first close in December 2019. The vehicle targets businesses with high-growth potential that are ESG-focused, operating in the niche manufacturing, specialised retail, business process outsourcing and e-commerce sectors. It deploys equity tickets of around €10m and acquires majority stakes of 51-55%, or minorities of no less than 30%. 

Suma told Unquote that it expects to slightly delay its final close in order to attract additional capital from international LPs and institutional investors, which have been a bit more reluctant in committing capital to the country than local LPs. "Our fundraising is proceeding well despite the crisis and we have recently received additional commitments from some Spanish LPs," says Pau Bermudez-Cañete, partner at Suma. "We expect to delay our closing for no more than three months."

GED Capital is also on the road and expected to hold a final close for its sixth vehicle, GED VI España, in the first half of 2020. The fund was launched with a €175m target and held a €100m first close in March 2019. It deploys equity tickets of €15-20m to acquire primarily majority but also minority stakes via buyouts and growth capital deals.

In at the deep end
The pandemic could have a more noticeable impact for the handful of GPs that announced a new fund at the beginning of the year, or those that were planning to launch a new vehicle in Q1 2020.

Meridia Capital was eyeing a return to market with a second fund targeting €125m, with a €150m hard-cap. The launch was originally expected at the beginning of 2020 but the GP is looking to delay. "At the moment we are focusing on supporting the companies in our portfolio, and making sure that they have cash in their balance sheets and the necessary financing to go through the crisis and fully recover," says David Torralba, a partner at Meridia.

Abac Capital has recently launched its second fund, Abac Sustainable Value II, with a €350m target. The vehicle plans to build an investor base primarily composed of international LPs, and is likely to see its fundraising slowed down by the crisis. It targets majority stakes in Spanish mid-sized companies with an enterprise value in excess of €30m, operating in the consumer, energy, industrials, technology, media and telecommunications sectors, providing equity tickets in the €20-50m range.

Spanish GP Portobello Capital launched a minority-dedicated fund, Portobello Structured Partnership I, with a €250m target and €300m hard-cap in January 2020. The GP was planning to hold a first close in Q1 2020 and hit its hard-cap by the end of the summer.

Before the crisis, Portobello expected most of the European LPs from its previous vehicles to re-up, while increasing the percentage of local LPs, following the growing interest in this asset class shown by Spanish investors. However, with several LPs postponing their investment decisions, the fund might encounter some delays.

Spanish funds currently on the road

source: Unquote Data

How to spend it
For private equity funds that held a close before the coronavirus crisis hit Spain, the situation appears less hostile but still presents challenges in deal-making and in finding the best exit strategies for their portfolio companies.

Nexxus Iberia held a final close on €170m for its first Spanish fund, Nexxus Iberia Private Equity Fund I, just before the outbreak erupted. The fund targets investments in Spanish companies with EBITDA in the €3-12m range that have the potential to be expanded into Mexico and the US. It deploys equity tickets in the €15-20m bracket and plans to make a total of 8-10 investments in companies with enterprise values of €40-100m.

"We are glad to have wrapped up our fund before the emergency, thanks to our strong base of Spanish and European institutional investors, private investors and high-net-worth individuals from Latin America," says Javier Onieva, a director at Nexxus Iberia. "We are now able to support adequately our portfolio companies and value carefully the best investment opportunities available at this difficult time."

The GP told Unquote that the fund is currently in exclusivity with one company operating in the real estate services sector and expects to close the deal just after the summer. In addition, the fund made three non-binding offers for a technology company, an industrial appliances specialist and a content production business. However, Nexxus does forecast increasing challenges for due diligence on new deals, as well as uncertainty for exit processes for the current portfolio.

"In the coming months, we expect delays in deployment and a slowdown in completing our first divestments, given that conducting a successful exit in this climate can be very challenging," says Onieva. "However, our fund held its final close only recently and we have plenty of time to choose the right opportunities and delay our processes if necessary, until the market gets back to normality."

MCH Iberian Capital V is also in negotiations to acquire two Spanish companies operating in the food industry, which MCH does not expect to be badly hit by the crisis, and might close these two deals by the end of the summer.

"We are going through with our negotiations, but we intend to be very cautious in selecting our next deals and finding targets resilient in a possible recession," says Muñoz. "Furthermore, we expect some interesting opportunities for private equity funds to arise in the aftermath of the crisis, especially in certain sectors that will require recapitalisation."

Suma is also going through with a new deal: the acquisition of a company operating in the technology sector. "We started negotiations last year and we expect to close this deal by the summer," says Bermudez-Cañete. "For other, more recent processes, however, we have put our due diligence on hold when the sector was badly hit by the crisis or have renegotiated new conditions to guarantee better terms to our investors. It is important to be cautious at this stage and look for truly resilient opportunities."

Suma is also managing the portfolio of its debut fund, Suma Capital Growth Fund I, which is currently around 90% deployed. The GP told Unquote that it decided to put on hold or renegotiate some of the add-ons that were in the pipeline for its first fund portfolio.

"Four fifths of the value of Suma Capital Growth Fund I is doing well," says Bermudez-Cañete. "All our companies are operating as usual except for two businesses in the retail and travel sectors, which had to stop their activity. All of them, including these two, have strong balance sheets, not much leverage and sufficient liquidity to face the challenges and find the necessary oxygen to recover and continue to expand after the crisis."

In addition to contemplating a return to the fundraising trail, Meridia also manages its debut fund, Meridia Private Equity I, which closed on €105m in June 2017 and is 85% deployed. Meridia started due diligence for the fund's seventh and last deal in January – the acquisition of a company in the healthcare sector – but had to put it on hold in March. "It has become increasingly challenging to ink deals in this state of alarm," says Torralba. "However, we expect to go through with our seventh deal and close it after the summer, considering that the target company is operating in a very resilient industry and is currently doing well."

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• Topics
• Fundraising
• Funds
• Southern Europe
• GPs
• Spain
• Exclusive
• coronavirus
• Suma Capital
• Portobello Capital
• MCH Private Equity
• Magnum Capital Industrial Partners
• GED Capital