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Iberian private equity’s time to shine

Lucy White 19 May 2017

After taking its fair share of knocks during the financial crisis, Spain has come back fighting. Since 2012, the country has seen a huge rise in its GDP growth rate, which has remained at around three per cent since 2015. Unemployment has shown significant signs of reduction, and the appetite for structural reform seems keen.

Recent data indicates that private equity in the Iberian region might be benefitting from these developments. As a percentage of European fund closes, Iberia is exceeding all of its previous records. From the year beginning to the end of April, according to Preqin figures, Spain and Portugal-based private equity fund closes accounted for 11 per cent of the European total by number – more than ever before in this period.

Having said that, the actual number of funds closed was just four – not an unusually high number. This may indicate that, rather than being Spain’s gain – since all the funds were Spain-based – the figures actually reflect Europe’s loss. “I think it’s a bit of both,” says Mikel Bilbao, of corporate financier GBS Finanzas. “The Spanish economy is performing very well and there are no clouds on the horizon. Business plans are credible and have got growth. On the other hand, there are some European markets that are completely overcrowded with funds.”

Bilbao is not the only one to sing Spain’s praises in the wider European context. “Many LPs are seeking pockets of value and growth as well as less efficient markets,” says Steve Cahill, managing director at placement agent Monument Group. “Within the context of fairly fully priced markets elsewhere, I think Spain can offer some of those elements.” The region has also been historically underweighted in some LP portfolios, he adds, and investors might now be looking to slot in that “missing piece”.

Now seems as good a time as any to look at Iberia. The lower mid-market, according to GED Capital’s Enrique Centelles Satrústegui, has room for many more players – and boasts some attractive businesses. “The companies that survived the crisis are probably in a stronger position than before,” he says. “Now you find small companies making 70 per cent of their turnover from abroad. This was not the picture of the past decade.”

However, although LPs may be noting the benefits of Spain, their eagerness is not unqualified. “The interest is for value-added specific strategies, not just for another plain vanilla mid-market or lower mid-market buyout fund,” says Jose Manuel de la Infiesta, partner at special situations investor Black Toro Capital. “LPs are highly demanding and sophisticated – rightfully so – and they are looking for the right strategy in the right context.”

Furthermore, international LP interest should not be exaggerated. Since 2013, Fond-ICO – the Spanish state-backed fund of funds – has helped fundraising by deploying significant amounts of capital in the region. And fund-close figures drawn just from the first four months of the year must also be taken with a pinch of salt, since spikes and fluctuations may be accentuated over shorter periods.

However, since Preqin’s figures were published, MCH Private Equity has closed its fourth fund at the €350m hard cap, and Real Deals revealed that Portuguese firm Inter-Risco will begin raising its €100m third fund in the second half of this year. For now, the future looks sunny for Iberia.

 

TAGS: Fundraising

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