Q&A: José Basabe of Jamieson & Basabe

Amy King: The new business, Jamieson & Basabe, will source and execute management advisory mandates in the local market. Are company managers currently well served by the corporate finance industry in Spain?

José Basabe: There is a real need for this type of service in Spain – there is nobody doing it professionally. Up until now, managers involved in private equity deals in Spain have relied on advice from the corporate finance adviser to the seller, which presents a clear conflict of interest.

The reality in the Spanish market is that there isn't such a buyout culture as there is in the UK and therefore you find many situations where managers know almost nothing about buyout structures, or what they can expect from a private equity fund. And this can really be an obstacle to closing a deal, because they may look for things that might not be possible. So having someone that can educate them in advance can help deals go through, while getting for managers the best terms within market practice.

This lack of buyout culture among managers has been something I have seen in my own private equity career, but also something I have often discussed with other colleagues in the industry. In medium-sized deals, this lack of understanding of private equity can really be a problem. In larger deals it tends to be less problematic but also sometimes delays and complicates the closing.

In general, private equity firms really want to make sure interests are aligned and that managers believe in the business plan that is on the table, but they have to be prepared to take some risk to follow it. Jamieson has been involved with all the big funds in Europe, so we know the terms that are acceptable for the funds. I think we can really help managers get the best terms for them and at the same time increase the probability of deals being closed.

AK: Spain has certainly reached a turning point and large international buyout houses are increasingly bullish on the local market, competing for assets. Is this reminiscent of pre-crisis years?

JB: I think we are going back into a new cycle. Spain has attracted a lot of interest in the last year and this is pushing prices up. I still don't think we have reached the high prices of 2006-2007, but we're getting there. And if we continue to live in a 0% interest environment we will probably see those prices climb even higher.

At the same time, leverage is also going up. It's still not as high as it was in 2006, for example, but it will get there. In mid-market deals, debt is still quite conservative but, on large deals, debt instruments are available on the London market and leverage is really going back to how it was before the crisis. I think we will probably end up making the same mistakes we made a couple of years ago – we're heading in that direction.

AK: What sort of multiples are you seeing in the local market?

JB: Decent assets are going for 7-8x EBITDA. But it depends; a lot of deals we have in the market are infrastructure deals and because of revenue stability multiples are more like 10-12x – but that's reasonable. However, traditional private equity funds don't usually do those types of deals – although we did see Cinven buy the fibre optic assets of Gas Natural this year, which was clearly an infrastructure deal.

AK: International buyouts have targeted larger assets than local GPs, which remain focused on the lower mid-market. Do you expect the number of secondary buyouts to increase, as local investors hand over assets to global giants?

JB: Absolutely. Spanish funds are generally in the range of €100-300m, which limits them to a certain size of deals. Players like Carlyle, Cinven and CVC have much bigger funds. I believe the number of SBOs will keep increasing. For us, it's often easier to provide a service in a secondary buyout than in primary deals because the management teams have a good understanding of private equity already.

AK: Are there enough quality assets to sustain the interest of both local and international GPs?

JB: It depends on how many deals funds want to do in Spain. Large funds without a local office – they may have a Spaniard working out of a London office – would probably want to do one or two investments in Spain per fund. But the problem is when they hire staff in Spain, and these people want to do Spanish deals – not just one or two but three or four. Then there clearly is not room for everybody. That's why prices go up, because people want to sign more deals.

I think it is less of a problem for smaller funds than for larger funds; there are really not that many good assets in the country for deals above €300m. You see CVC, Blackstone, Permira, Cinven and other large funds are all eager to do deals and that's the segment where I don't think there are that many assets. And unless they are conservative, prices will really go up.

It really depends on each fund. Some are very reasonable and they hire people without putting pressure on people to close deals. But others are in a hurry and they put pressure on their people. It's not easy to be in a fund that has been investing for a few years but hasn't closed a single deal. But that puts pressure on people to close deals, and that's where real problems begin.

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