TTR: How would you describe the 2019 M&A market activity in Spain?
Hugo Écija: 2019 has been a positive year for the Spanish M&A market. The volume of deals has increased nearly 6% last year. Likewise, Spanish companies have incremented their investments abroad. Some figures say that the deals increased 13.4% between January and September. However, this data contrasts with the decrease, in number and value, of the investments carried out by foreign companies on Spanish companies.
We are optimistic about the future of the M&A market given the relevant leading role acquired by private equity funds in the last months. We continue to see interest in acquiring stakes in tech and disruptive companies; as well as an appetite for quality assets in the market. All this leads us to expect an improvement in transactional activity.
For us, it has been a very dynamic year since we are leading transactions in the mid-market and booming sectors such as technology and media. We have also seen a growth of deals in territories where we have a strong presence and activity; such as Portugal and Latin America.
What is your opinion of international investors’ appetite for Spanish companies? What do you think are the most attractive sectors?
Spain continues to be an attractive market for international investors. According to the United Nations Agency for Trade and Development’s annual report, Spain has avoided the sharp drop in investment in Europe reaching almost 50%, and has consolidated itself as the third largest European recipient of foreign investment, following the Netherlands and the United Kingdom. This is the largest figure for Spain since 2008, mainly favoured by cross-border mergers and acquisitions.
The trend in the last year has been marked by a clear orientation towards media and tech sectors; considering fintech, big data, cybersecurity, mobility, biotech, etc. Industrial, real estate and renewable energy sectors have also been strengthened. These are some of the sectors where ECIJA has been advising clients for the last year.
The Venture Capital segment continues being very active in the Spanish market in 2019. What are the reasons for this circumstance?
Venture capital investment has reached 4,060 million euros in the first half of the year, which represents a 21.3% increase in comparison to the same period in 2018. This stands out as an all-time record which is based mainly on the entry of international funds into Spanish companies. These international funds have investment appetite with both private equity and venture capital, now that they have liquidity and believe that Spain is an attractive market to invest in. In this context, the return offered by the venture capital generates a lot of interest for funds.
The interest of international funds can be attributed due to the quality of companies, the infrastructure, the skills of human capital and the level of Spanish professional services, which are comparable to those of the most advanced countries in Europe.
In addition, there is a noticeable change in strategies carried oud by large and medium-sized companies when it comes to accessing new trends, innovation and knowledge. The fierce commercial competitiveness has made those companies pay special attention to expansion opportunities by seeking the creation of productive synergies with significant cost savings. The goal is to foster effective systems with creative and innovative business models; as well as solutions that can quickly achieve a competitive advantage in markets where they have a presence to explore new opportunities in other markets.
Most Venture Capital transactions registered in Spain are Seed or in Early Stage rounds. Is there room in our country for deals of a higher volume? Are we approaching countries with a longer-standing tradition in this kind of deals?
Of course, venture capital’s market in Spain is evolving at a very rapid pace. All members of the entrepreneurial ecosystem are contributing to start-ups’ dynamization. This is enabling more and better investment projects; along with increased money under venture capital fund management and better opportunities for disinvestment.
Currently we see a clear trend towards the internationalization of entrepreneurial projects which are showing needs to not only operate in the Spanish market. This is due to the professional investment that supports this growth, and an increasingly prepared and professionalized projects.
In addition to this, the conditions of the Spanish market along with the existing (and affordable) talent are almost a perfect situation for technology companies to establish their hubs in the country.
On top of that, we have seen that the activity in the investment range between 5 and 10 million euros has increased and the estimates also show a large movement in the so-called middle market with operations between 10 and 100 million euros. Investment volumes are being marked by the considerable rounds of financing that are being made in start-ups. It is likely to keep this positive trend and reach new all-time highs.
At a European level, we can say that this result is very positive. Spain has managed to reduce the difference regarding other countries which have already accustomed to this type of investment. These countries include the United Kingdom, Germany and France. In this regard, Spain exceeds the European investment average.
