Chambers Practice Area Overview 2020 – Corporate M&A
1. Economic Environment Overview
The Portuguese economy continued to improve in 2019, although the growth rate is expected to slow down in the next few years.
In fact, Portuguese GDP is estimated to have grown 2% in 2019, exceeding the estimated average growth in GDP in the euro area (1.2%). The downward trend in Portugal’s GDP growth when compared to 2018 and 2017 (GDP growth of 3.5% and 2.4%, respectively) may indicate a deceleration of Portugal’s economic activity, which is expected to continue in the coming years in the context of a similar worldwide trend. Experts estimate that the world is on the brink of a recession originating from the economic expansion of the US market, international geo-political and commercial tensions, an inverse yield trend in treasury bonds, as well as the currently unpredictable economic impact of Brexit, which may affect all European countries, including Portugal.
In 2019, the unemployment rate continued to decrease (from 7% in 2018 to 6.5%, the lowest rate since 2004) and it is expected to decrease by 0.4% in 2020.
On the Portuguese political scene, the outcome of the elections in 2019 was to re-elect the previous Government. This means political choices in Portugal may benefit from a certain degree of stability in the next four years. However, the alliance between the left-wing parties that was in place for the last four years has officially been terminated and this may lead to different political balances and solutions being found by the minority Government in the future, on a case-by-case basis.
2. M&A Trends in 2019
The Portuguese transactional market registered a total of 428 recorded deals in 2019, which represents a significant increase since 2018 (350 deals). Specifically, 2019 witnessed an increase in venture capital transactions, with the number of M&A, private equity and asset acquisition deals generally keeping up with the 2018 statistics.
The disclosed amount of investments in 2019 totals around EUR 13.4 billion.
As in the previous years, real estate was the sector with the highest number of deals in 2019, with a total of 91, although there was a 5% decrease compared with 2018. This was followed by the technology sector, with a 41% increase over the previous year. Then came the finance and insurance sector, with an 18% increase since 2018. Lastly the tourism, hotels and restaurants sector suffered a a decrease of 15% compared with 2018.
More than 90% of the value of M&A transactions provided by foreign investors, making 2019 the year with the highest number of inbound transactions in the last 5 years. Investors have been, in the majority, from Spain, the United States of America, France and the United Kingdom.
Simultaneously, 2019 was also the year with the highest number of outbound transactions in the last 5 years, with a clear preference for the Spanish market.
3. Market Opportunities in 2020
The M&A market in Portugal is expected to maintain the trajectory of growth in 2020, although at a slower pace.
As in the last few years, highly leveraged Portuguese companies will continue to be an equally important factor in M&A activity in Portugal and to draw investors who present solutions to provide much needed funding. Furthermore, 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, and this may generate attractive M&A opportunities.
2019, like 2018, was particularly dynamic in the sale of NPL portfolios by banks. It is probable that this will continue to be a very significant trend in Portugal this year. These transfers are likely to provide M&A opportunities to invest in assets at lower prices.
Over the last few years, Portuguese private equity players have been consolidating their positions and will certainly offer opportunities for M&A transactions, through both investments and divestments.
Significant infrastructure projects are planned to go ahead in the coming years and public investment is predicted to increase. This is expected particularly in the public transportation sector and in the Lisbon drainage system, but also in expansion of the railways, construction of several new hospitals, including a new hospital in Lisbon, and a new airport in Montijo (on the southern bank of the Tagus River). All of these projects are bound to attract foreign investment and increase competitiveness.
Tourism will continue to be one of the biggest factors contributing to the growth of the Portuguese economy, as Lisbon and Oporto will no doubt continue to be regarded as preferred destinations in Europe. Furthermore, investment in the real estate sector – across all of its segments – will continue to be a major driver of the Portuguese economy. Simultaneously, companies acting in the desirable technology and energy (particularly renewables) sectors, as well as fintech companies will continue to be on the radar of investors.
At the end of 2018, the world renowned digital/Internet event Web Summit announced that Portugal would host the event for an additional 10 years and this has contributed to Portugal being recognised as an attractive and dynamic technology market.
Brexit has also contributed to an increasing number of companies approaching the Portuguese market with the intention of relocating their businesses and this may also generate additional M&A opportunities.
Finally, M&A activity in Portugal will continue to be benefit from business partnerships with companies located in Portuguese-speaking countries such as Brazil, Angola and Mozambique. Furthermore, many investors from these countries continue to see Portugal as a strategic gateway to the EU market.
By Diogo Perestrelo, Duarte Schmidt Lino, Bárbara Godinho Correia, Inês Pinto da Costa and Filipe Avides Moreira