SPAIN: An Introduction to Corporate/M&A: Mid-Market

Spain: Corporate M&A 

1. Overview of 2021 

During 2021, a recovery of some of the businesses most affected by the COVID-19 pandemic has been observed. Interest rates at historic lows and abundant liquidity in the hands of investors are undoubtedly key elements to justify the remarkable growth of the M&A sector this year.

In the venture capital sector, unlike other years, a large number of the main transactions have involved industrial clients.

According to estimates obtained by the Spanish Association of Capital, Growth and Investment (ASCRI for its acronym in Spanish), the volume of private equity investment in Spain in 2021 reached €7,494 million in a total of 841 investments. The figure achieved in 2021 represents the second-best historical record in terms of investment volume, behind 2019.

Venture Capital surpassed all-time highs, both in volume (€1,942M) and number of deals (691). International Venture Capital, once again, recorded record investment, with a volume of €1,575M. The large deals segment (over €100M) recovered, with 10 investments in 9 companies. The middle market (€2.338M) maintained the intense dynamism of recent years and registered a new record number of investments (93). Fundraising for new domestic private equity and Venture Capital vehicles, mainly supported by the improved economic and health outlook, reached €2,583.8M, 21% more than in 2020.

The sectors with the highest volume of investment were ICT/Internet (28.7%), Other Services (27.5%) and Hospitality/Leisure (10.7%). By number of investments, ICT/Internet (427 operations), Biotechnology (62) and Financial Services (56) stood out. The volume of divestments recorded an estimated figure (at cost) of €1.49 billion in 238 deals. The number of write-offs (recognition of capital losses) remained minimal.

Some of the most noteworthy transactions of 2021 are the acquisition of Eolia Renovables by ENGIE in consortium with Crédit Agricole, the acquisition of Adamo by Ardian, the acquisition of Altadia by Carlyle, as well as MásMóvil’s takeover bid for Euskaltel and the acquisition of Suanfarma by ArchiMed, among others.

2. Overview for 2022 

The general forecast for the beginning of 2022 has been optimistic as far as the M&A sector is concerned; although it was not expected to reach the levels of 2021, the trend seemed to indicate that 2022 would continue to be a very active year in the sector due to the maintenance of high levels of liquidity, the good mood of investors and the interest in accelerating technological implementation, among other factors.

In addition to the above, the evolution of the COVID-19 pandemic, despite the arrival of the last wave in previous months, has been positive and seems to be heading towards greater normalization, with the effects that this entails for the economy.

Regarding the leading sectors for investments, the energy, infrastructure and all areas linked to the Next Generation Funds, bio-health, technology, education and agri-food sectors are expected to maintain their momentum.

On the other hand, the importance that investors attach to ESG principles (environmental, social and governance) and sustainability in M&A continues to gradually increase, conditioning more and more their decision-making on compliance with these principles and their assessment as risks in due diligence processes.

Likewise, technology will continue to be a fundamental value, not only to achieve the greater efficiency it has brought to M&A transactions, but also as an end to achieve progress in its digital transformation process through M&A. It is also worth mentioning on the technological front the incipient irruption of cryptocurrencies and blockchain, which has been gaining importance in the past year in the sector, growing from $1.1 billion in 2020 to $55 billion in 2021 and being expected to continue doing so.

However, we must consider the presence of other factors generating uncertainty such as the possible increase in interest rates or inflation, which has continued to rise and has been spurred on by the conflict in Ukraine, a key issue whose resolution will determine whether or not the optimism of the forecasts made will be reduced.

3. Main trends for 2022. 

1. Disruption of the supply chains and inflation: these are two of the main challenges facing the economy and, consequently, the M&A sector, which could see a slowdown in transactions if current trends continue. On the other hand, the impact on supply chains may lead companies to either relocate their production or vertically integrate their businesses through mergers and acquisitions to help them overcome shortages of raw materials, port paralysis, increased delivery times, etc.

2. Spin-offs and divestments: this is the case for groups of companies such as Daimler, IBM or Johnson & Johnson, which have opted to separate parts of their businesses or divest assets in order to focus on their strategic businesses and set aside less profitable and/or relevant ones.

3. Digitalization via M&A: the path set and accelerated by the pandemic will be driven and enhanced by mergers and acquisitions that will enable companies to acquire new capabilities that can deliver more value.

4. Increased competition among Private Equity funds: the existing competitive pressure to generate higher returns suggests that funds will continue to be allocated to M&A transactions, continuing, or increasing the trend.

5. ESG principles: the growing interest in the observance of environmental, social and governance principles may lead to divestments in non-sustainable assets and investments in others that are sustainable or in the process of conversion, which will undoubtedly lead to movements in the M&A sector and the arise of new opportunities.