Forward thinking

SPAIN

Oliver Weichold, Managing Director, IKB Deutsche Industriebank Spain

"2009 will be a slow year. Foreign large-cap LBO banks are likely to remain inactive for the most part, as no rumours have yet been heard of large deals in the pipeline. In contrast, club deals in the SMC segments will dominate the market. Leverage ratios and financing conditions, although less dramatic than in 2008, will continue to be driven by the most conservative player in the club deal; a healthy occurrence. The banks' situation is likely to improve during the second quarter of the year. Spanish banks remain open for business, with their involvement often conditioned to their handling of the day-to-day banking of the target companies. This is in itself good news for foreign banks, especially those operating at the small- and mid-market level.

The same cannot be said of the performance of many portfolio and target companies; banks and sponsors will see targets underperforming. Some of them will indeed be experiencing difficulties which will lead to equity sponsors offering low enterprise values for new deals, which in turn will result in sellers showing less enthusiasm for carrying out deals, thus negatively affecting the overall dealflow. It may be interesting to keep an eye on large corporations as they may find themselves compelled to sell their "non-core" assets in order to improve their liquidity situation."

Carlos Pazos, Managing Partner, SJ Berwin Madrid

"The dealflow for 2009 will not be much better than that of 2008. What encouragement is there for dealmakers to pay high EBITDA multiples when even large and, for the most part, established companies are trading below book value? It will be difficult to close investments. Yet the important sums of money sitting with GPs in the form of LP commitments means these funds need to be invested. Crises have a way of creating incredible opportunities and in this sense the 2009- 2010 vintages promise to be very good ones. As for divestments, with the IPO route dead and SBOs suffering from a lack of liquidity, trade sales will prevail. But industrial buyers are being selective and will not over pay.

This crisis will allow private equity to return to its origins and step away from the excessive leverage that has contributed to the current conundrum. One thing is certain; the current scenario will continue to transform the industry. The position of the firms in the top quartile will be challenged."

Neil Collen, Partner, Livingstone Partners Spain

"The year ahead will get of to a slow start but it should pick up in the second half of the year and in particular Q4. There should be some improvement in financial markets and large LBO banks, domestic and foreign, will be "open" for business provided the deal before them is an attractive one. Among the attractive possibilities is the sale of non-strategic assets by corporate parents. These will get the attention of private equity and corporates alike, although private equity is also likely to focus more on taking minority and growth stakes in companies with strong operational structure but needing some assistance in order to streamline it further.

We are also likely to see three main trends in the private equity world: 1) more focus on the operational excellence of portfolio companies; 2) more pure equity plays, and perhaps in one or two instances; 3) large funds creating vehicles to buy their own debt as is the case in the more mature markets."

ITALY

Daniele Candiani, Country Head, Italy, IKB Deutsche Industriebank

"The first six months of 2009 will be difficult as they will follow a similar pace to 2008. Pessimism in debt providers' circles is directly proportional to the size of the institution. That is to say, investment banks will tend to see it all black - as they serve a market that is not moving much; while local banks and foreign banks focusing on small- & mid-caps will be less pessimistic as the dealflow in the mid-market is maintained.

In terms of what to expect, we'll see perhaps one or two large deals (Cerved and SSIA-SSB), but the bulk of the dealflow will take place at the small- and mid-market level. Debt structure will reach at the most 3.0-3.5x EBITDA senior with 1.0 EBITDA mezzanine; anyone getting a 4.0 debt facility should feel lucky. As for debt providers, Italian institutions (Banca Intesa, UniCredit and BNL-BNP Paribas) will remain at the top. Some foreign banks are finding an interesting niche on small-mid caps."

Mara Caverni, Partner, Transaction Services PricewaterhouseCoopers

"The first quarter of the new year will be a slow one. The September 2008 financial crisis dried out most of the debt, killing the pipeline as a consequence. However, 2009 could be a good vintage year. It is a matter of waiting for the uncertainty to decrease, allowing prices to be more accurately set. Large funds will have the upper hand, but more stringent terms for debt mean that investors will have to increase their equity share or take minority positions financed mostly via equity.

Family businesses will remain the main sourcing for deals, especially as companies look for partners that will help them survive the crisis and penetrate the market. P2P transactions will remain modest until markets show more stability, while turnaround cases are more likely to occur within a portfolio rather than on a stand-alone basis. Secondaries will flourish although these deals will most probably be carried out by foreign players. Exits will more than likely pick up the pace in Q3 and Q4."

Eugenio Morpurgo, Managing Director, Fineurop Soditic

"2009 will be dominated by a buyer's market and the absence of megadeals. Average multiples will go down but top quality companies will not be sold at a strong discount. Unless coerced into it, sellers will simply play the wait and see game. In general, we will see more minority investments, especially under the form of share capital increases. Needless to say, there will be more turnaround projects while the the secondary buyout market will see a strong slowdown. There will be good opportunities for strategic buyers and also competitive advantages vis-a-vis financial buyers, but their moves will also be affected by the volatility of the stock market values and the current financial crisis."

PORTUGAL

Isabel Sousa Coelho, Investment Director, Inter-Risco

"Dealflow will probably decrease during the first quarter and will start picking up around Q2. But, the overall sentiment is not a pessimistic one; the Portuguese market has, in the past, been mostly driven by venture capital more than private equity but it is changing. The fragmentation and the family-owned nature of the businesses in the Portuguese market presents many opportunities for proprietary deals for private equities. Multiples should continue in their current path, which is a healthy one.

"In terms of fundraising, although it won't by any means be easy, the presence of now established players with a solid track record will facilitate the task. Private equity and venture capital have slowly been building up and are better placed to attract interest from foreign institutional investors."

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