Portugal Q&A: Small is beautiful

Is the Greek debt crisis going to affect Portugal's appeal to investors?
This is a question that is asked by many of our investors, particularly now that we are fundraising. The truth is that for us the Greek issue is not a major concern. For instance, unlike Spain, Portugal was not really exposed to the real estate sector. Also, exports have a very small contribution to the Portuguese GDP compared to other European countries.

Public debt is expected to climb to 85.4% of GDP this year, up from 76.6% in 2009, but the government has adopted some austerity measures, which include cutting welfare benefits and government spending, as well as selling assets and raising taxes. These measures have probably contributed to the success of the bond placement, which raised €990m - more than the initially targeted €750m. This says a lot about market confidence in the Portuguese economy.

How does the Portuguese market compare to other European markets?
The Portuguese market may at first appear unattractive and immature but can offer rich pickings, especially for private equity houses with local knowledge.I would say the Portuguese private equity market looks very much like the Spanish did 15 years ago.

What makes Portugal interesting to investors?
Firstly, the industry itself is underdeveloped with most deals being sourced proprietarily. Similarly, while there is little competition from domestic or foreign operators, it is true that the latter have shown growing interest in Portugal. Secondly, the absence of multinationals in Portugal, plus the fact that very few sector leaders control more than 10% of their particular market, means there are many opportunities for consolidation. Therefore it is much easier to generate value through buy-and-build strategies, operational/managerial improvements and organic growth.

How accessible is debt financing in Portugal?
It all depends on the asset you are going after. We target businesses reporting between €10-100m in turnover and our equity tickets are typically between €10-15m, and we manage to get leverage multiples of 3-4x EBITDA. Leverage is available from both Portuguese financial institutions and local branches of foreign banks. Given the nature and development stage of the domestic market in Portugal, the products available are far less complex than in other European markets. Debt facilities mainly consist of senior amortization with some bullet financing; the use of mezzanine is residual. Curiously, we are also seeing better terms and spreads than two years ago.

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• Topics
• Southern Europe
• Investments
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• Portugal
• Senior debt
• Small-cap buyout
• Mid-market buyout