Deal in Focus: Advent unlocks Spain's troubled housing market

In early April, Advent sold its 94.6% stake in Spanish property appraisal firm Tinsa to Cinven. The secondary buyout has been valued at €350m, which represents 10x the company's forecast 2016 EBITDA and makes it the third largest exit in the Spanish private equity industry since January 2015, according to unquote" data.

Advent purchased its controlling stake in the business for €100m in 2010, when the Spanish real estate and property market downturn was gathering pace. Following the financial crisis of 2007-2008, prices in the Spanish real estate market dropped by more than 30%, according to press reports at the time of the deal. Because of the challenging backdrop, Advent was attracted to the firm due to its position in the sector and its growth potential.

Speaking to unquote", a source familiar with the situation explains Advent's reasoning for backing the company during the crisis. The GP was aiming to capitalise on a few specific elements that made Tinsa stand out from its competitors – the key factor being how Tinsa was embedded in the banks' processes.

Tinsa was founded in 1985 by a group of 35 Spanish savings banks, including Caixanova and the Spanish Confederation of Savings Banks (CECA). Against this setting, Tinsa had the opportunity to develop an in-house appraisal technology embedded into the processes of the banking system.

Following the Advent acquisition, Tinsa maintained its business structure and still counts 90% of the Spanish banks in its client base. It was this client base that gave the company a key advantage compared to its competitors and still plays an important role in the risk assessment process for granting new mortgages, the source adds.

Tighter regulation
In addition to its attractive client roster, Tinsa was able to take advantage of the tighter regulation imposed by the Spanish government as a means of stemming the property downturn, as a consequence of its business structure.

The new regulatory requirements created higher barriers to entry and requires properties to be appraised before any new mortgages can be granted. At the same time, the new regulation demands that banks regularly appraise the value of their real estate portfolios.

As a result, the new regulatory environment awarded Tinsa with a compelling position in the property market, says the source. Furthermore, Tinsa's in-house technology allows the firm to offer appraisals in other sectors complementary to property valuation, including energy audits and the monitoring of property developments.

Cinven was not the only private equity firm interested in the auction process, unquote" understands. The Rothschild-led process, launched in January 2016, saw Charme Capital Partners, Península Capital Advisors and Apax Partners all vying for the business, alongside several large industrial groups, including American Appraisal.

Following the acquisition, Cinven intends to invest in the company's technology and improve the speed and accuracy of its valuation services, as well as expand the business internationally, including further bolt-on acquisitions in Latin America.

To date, Tinsa has a presence in seven countries, including Spain, Portugal, Argentina, Colombia, Mexico, Chile and Peru. The business generates a turnover of €86m with a €20m EBITDA margin.

People
Cinven – Ben Osnabrug (senior principal); Jorge Quemada (partner).
Advent International – Carlos Santana (director).
Tinsa – Ignacio Martos (chair, CEO); Juan Guerra (CFO).

Advisers
Equity – Socios Financieros (corporate finance); Clifford Chance (legal); McKinsey (commercial due diligence); KPMG (financial due diligence); Deloitte (tax); Garrigues (HR due diligence).
Vendor – Rothschild (corporate finance); Uría Menéndez (legal); Oliver Wyman (commercial due diligence); KPMG (financial due diligence).

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