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PORTUGAL: An Introduction to Corporate/M&A

Chambers Practice Area Overview 2019 – Corporate M&A


1. Economic Environment and Business Climate

The performance of Portugal’s economy in 2018 was better than the outlook from most foreign institutions when the year started. Unemployment was significantly reduced, and the economy and the GDP continued to grow steadily.

The forecast for 2019 is quite positive and it is possible that, for the first time in many years, there will be a public surplus in the State Budget or, if not, any deficit will be very close to zero.

The economy should continue to grow (estimated at 2.25%), although at a slower pace than in the last two years (2017 – 2.8%; 2018 – 2.3%), aligned with a milder growth tendency across European economies. Portugal is and will remain a small open economy that is very dependent on what happens to our major partners, particularly the EU Member States and, above all, our neighbour Spain. This also means that whether or not our economy grows is very much driven by external factors.

2019 will see an additional effort from the Government to carry out public investment, mostly in infrastructure. This is something that has barely happened in more recent years.

In fact, very significant projects are planned to go ahead in the coming years and will probably begin before the end of 2019. These include the launch of the new Lisbon airport, south of the river Tagus, together with a major refurbishment of the existing airport and the access ways to and from the new airport. Even though a significant part of this investment will be borne by the concessionaire, this will boost the economy and the Portuguese State will be responsible for a relevant part.

The State has also announced other large investments such as new hospitals in different locations. Among them are a very significant hospital facility in Lisbon (to replace several existing hospitals) and a new hospital in Évora, south of Lisbon. Significant and badly needed investments in railway and metro infrastructures and equipment have also been announced.

Moreover, very sizeable investments are planned in the main port facilities in Leixões (near Porto) and Sines (in this case, a large part of it borne by the concessionaire). These investments have been announced before and time will tell if they will really materialise and what their impact will be on modernising the Portuguese economy and making it more competitive and attractive to foreign investment.

Many agree that although public investment is necessary, it is no less important that the State does not intervene unnecessarily in the economy but rather creates the conditions for private investment to happen. There is a clear concern from the Government and stakeholders in general to make the Portuguese economy more competitive and attractive to private investment, especially in 21st century activities: digital, technology, robotics, etc. At the end of 2018, it was possible to announce that the world renowned digital/Internet event Web Summit (check would stay for an additional 10 years in Portugal and technology companies such as Google announced large investments in Portugal.

When we take stock of this new year of 2019 at the end of the year or early in 2020, we are most likely to dwell on the impacts of relevant international factors that emerged in 2018 and dragged on to 2019, or that will even emerge this year. These factors include the impact of trade wars in the international markets, although the turbulence seen in the final months of 2018 is certainly not a good omen; the impact of Brexit, or not, hard or soft (we could go on...); and the impact of the general elections in Portugal that will take place in October.

There will be a new Government and it is impossible to know whether the current majority parliamentary coalition will prevail in new elections and will continue and support a new government for an additional four years. Should this happen, we can expect political stability and that the new Government will continue the work the existing Government has done in the last four years. So, will the political landscape change or not? Few believe things will remain the same and most believe there will be significant changes.

Tourism will continue to be a major factor in the growth of the Portuguese economy. Cities like Lisbon and Porto will continue to see new hotels opening and all that comes with them. Furthermore, investment in the real estate sector – across all of its segments – will continue to be a major driver of the economy.

The financial sector, which has suffered considerably over recent years due to different factors, appears to have finally recovered and the results of most banks are no longer in the red. There is still a long way to go to rebuild and reinforce the banking sector, reduce impairments and make financing more accessible, but progress is visible. As a result of the reduction in the government deficit and the good overall performance of the Portuguese economy, the rating of the Portuguese Republic was upgraded and is now ranked at investment level by all major rating agencies. This will improve the ability of both the Portuguese State and companies to obtain financing and reduce costs.

2. M&A Trends 

The Portuguese M&A market registered a total of 350 deals in 2018 (compared with 358 deals in 2017). These deals represent a disclosed investment amount of around EUR 22.6 billion (an impressive growth of 76.13% compared to 2017). Of the 350 deals recorded in 2018, 270 were M&A transactions, 45 were venture capital transactions and 35 were private equity transactions.

The real estate sector was again the most targeted. It was followed by technology, financial and insurance, energy and others. In 2018, the vast majority of the registered transactions involved acquisitions made by foreign (in-bound) investors, particularly, investors coming from Spain, followed by the UK and the US.

In a small market like Portugal, dominated by small and medium-sized companies, medium-value transactions continue to lead M&A trends.

3. Market Opportunities 

We expect the M&A market in Portugal will maintain the trajectory of growth and steady recovery established over the last few years.

Highly indebted Portuguese companies, most of which are family owned, will continue to be an equally important factor in M&A activity in Portugal and a driver for investors. They will be particularly important to foreign investors looking for business opportunities, because these companies and their shareholders are seeking to merge with other players, reduce costs and, in particular, increase their size and financial capacity. It is difficult for these companies to obtain much needed financing otherwise.

Furthermore, considering recent years, there is a clear tendency for these companies to adopt a strategy of divestment in non-core assets in order to improve their financial structures.

2018 was particularly dynamic for the transfer by banks of NPL portfolios. It is likely that this will continue to be a very significant trend in Portugal this year. These transfers are likely, sooner or later, to provide M&A opportunities to invest in assets at lower prices than would otherwise be possible.

Over the last few years, Portuguese private equity players have enjoyed significant growth and should continue to invest. Some of them will also develop exit strategies for their portfolio investments. We will see both trends.

As mentioned previously, tourism and real estate will go hand-in-hand and probably be again the stars of the Portuguese economy in 2019, including for the purposes of M&A. At the same time, companies in the technology and energy (particularly renewables) sectors will remain very attractive and under the spotlight of investors.

Finally, M&A activity in Portugal will continue to be influenced by the close business ties with the Portuguese-speaking countries such as Brazil, Angola, Mozambique and Macau, which represent a gateway to a potential market of hundreds of million people worldwide. Conversely, many outbound investors from these countries continue to see Portugal as a strategic access into the EU markets. This was very visible in the case of Brazil in 2018, with significant investment in Portugal from this country.

The bottom line is, therefore, that good news is expected in 2019 and, if all goes well, the volume and size of deals in 2019 will continue to grow at a steady rate.

BY: Manuel Santos Vitor, Tomás Pessanha, Duarte Schmidt Lino and Diogo Perestrelo (Partners)