The last time you heard from me was early September, to announce that Inveready, a Barcelona-based venture capital fund, had just raised €15m. My silence since that last blog was caused by the fact that most of what has happened in Spain is tremendously political and therefore it is to a certain extent beyond the scope of Real Deals.
However, politics have their influence on business in general and on private equity in particular, so I think many of you will be interested in knowing what is going on, where things might be leading to and what is the current status of private equity and M&A in Spain.
Today, the campaign has started for the regional elections in the Basque Country and in Galicia. In the background are the upcoming elections in Catalonia, which are scheduled for 25 November. Meanwhile, with 1.5 million people on the street in Barcelona claiming independency from Spain on 11 September, a new demonstration has been called for 12 October to claim that Catalonia should remain a part of Spain.
Meanwhile, a lot of conversation is going on about the Spanish bail-out. Will it happen or not? Will the Spanish government request EU funds? What are they waiting for? Are they waiting for the elections in Galicia, where the PP is governing but might lose its majority? I think only the government knows.
Meanwhile there has been some good news: most Spanish banks are declared solvent by the review which was published this week by Oliver Wyman. Santander, BBVA, La Caixa, Sabadell and even Banco Popular are declared to be OK. So what about all the noise with Bankia and some of the other small players? Not being from Spain, you might want to know if there is not a bankruptcy procedure in Spain and I have to tell you that yes, there is such a procedure, but for some reason, even though more than 80 per cent of the banking system is sound, the government does not want to apply this to Bankia, Catalunya Caixa and some of the other smaller banks.
So where does this leave the PE industry and M&A in general? The number of deals has dropped significantly:
- Deal activity is significantly lower in 2012 than in previous years
- Private equity houses are building up their portfolios. The number of private equity-backed buyouts is much higher than exits.
This last phenomenon can be explained by the fact that many firms entered 2009 relatively cash-rich: on the basis of a booming economy, it was easy to raise funds in 2006 and 2007. But the result is that many private equity houses are struggling with a poor-quality portfolio.
So where do we go from here? Let me share some ideas with you:
- The large PE portfolios create opportunities for investors who are not afraid to take a chance.
- Not all sectors of the Spanish economy are doing too badly. Exports in certain sectors are rising. The number of passengers at Barcelona airport is increasing, although not all airports in Spain are doing so well.
- And yes, Catalonia is likely to become independent. According to the latest survey (of last Sunday), only 35 seats in the parliament (of 135 seats) would be occupied by the two main Spanish parties, PP and PSOE. So we better start thinking if this has any consequences for our activity. Or if this generates any new opportunities! For your information: according to my analysis of the 2011 Mergermarket data on the Spanish market, 29 per cent of the targets were located in Catalonia.
Maarten de Jongh is managing partner at Spanish advisory firm Norgestion.