Prices rise as Spain enjoys newfound popularity

Draghi's now-famous statement to do "whatever it takes" to save the euro has pushed down borrowing costs in Spain and Italy, easing pressure on national governments and economies. And more than two years after Draghi uttered those three little words, Spain has made an emphatic return to the private equity map.

"I think that Spain is attractive, given what they have done in the past few years in terms of reforming the market," says Ralf Gleisberg, partner at Akina. "But the big risk there is that a lot of money has now already flowed into the market. Let's see if this is too many people thinking in the same direction."

The true force of investors' volte-face is clearly reflected in unquote" data, with the volume of buyouts this year already exceeding those recorded in 2013 and on par with those completed across 2012. International and local GPs have gone head-to-head this year, with each attracting an even share of dealflow, equally split between primary and secondary deals. Deaflow has picked up and the pace has accelerated rapidly. But what price are investors willing to pay to profit from Spain's newfound popularity?

Pricing picks up
"The main issue at present is not a lack of resources, but that investors do not seem to be finding opportunities at the right price. What we have seen in the past six months is that the multiples you have to be prepared to pay have increased over the past six months," says Javier Perez Farguell, partner at corporate advisory firm Clearwater International. "Around 24 months ago, there were very few transactions but those that occurred would have been in the region of 5-6x. Now the multiples are at least 7x. Prices are moving up at a very fast pace."

And for those assets with a real estate element, of which Spain has plenty, competition has been particularly rife. Anecdotal evidence suggests that the entrance of US-based hedge funds into local auctions, swooping into the Spanish market to scoop up undervalued assets, has led to looser wrists writing larger cheques compared to private equity, with a subsequent impact on pricing.

Centre of attention
But though increasing multiples could be a headache for private equity, Spanish companies are enjoying the shift in power brought about by a newfound status as centre of attention. "When you are looking to buy now, most companies will have audited accounts for 2012/13, but the reality is they do not have audited accounts for 2014.

However, if those improved forecasts are realised, then I believe investors will be prepared to move faster and make quicker decisions," says Farguell. "In the past 2-3 years, one of the problems we have seen is that investors did not make quick decisions. They procrastinated; it was a case of stop-start, and waiting three months for things to be considered. But if they perceive that multiples could go up, they might make decisions quicker."

And while the Spanish government is now enjoying more attractive terms on its debt, that development is mirrored in company lending, further demonstrating the shifting power balance. "The situation has changed substantially – now there is competition among banks to provide good companies with both short- and long-term debt financing and the rates are declining. Before the crisis, spreads were typically less than 1%; during the crisis, companies had to be prepared to pay 4-5% over Euribor. But now, good companies are able to bargain with banks and there is some competition to get those deals," says Farguell. As pricing rises across Spain, debt and equity providers alike are fiercely competing for assets. But are they ready to do whatever it takes?

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