Focus in M&A opportunities in Spain
By Rodrigo Martos Prat, Javier Gallego Larrubia & Andrés de la Quadra-Salcedo Janini
Posted: 19th December 2012 09:54
Crisis are said to be periods of great opportunities for the ones who are able to wisely identify them, in fact, the word “crisis” in Chinese shares and ideogram with the word “opportunity”.
There is no better analogy to understand the reality of the Spanish market today. It is undeniable that the global crisis is having a severe impact on European economies and, in particular but not only, in the Spanish one, an impact that has been worsened by the bursting of the real estate bubble which has been added to the financial worldwide crisis.
The corporate finance transactions market, led by private equity players and other institutional investors, has come almost to a stop due to the financing restrictions and uncertainty on the short/mid-term TIR] existing up to date and the difficulties of the Spanish economy. It is almost impossible not to agree that the times for 90% leveraged acquisitions with purchase prices from six to even ten times EBITDA, aimed to obtain a satisfactory TIR in three/four years are over. Nevertheless, it should be considered that if when the market was mature Spanish businesses paid up for that king of transactions, why would they not do it now in the medium term being the market is at its bottom and with full room to grow back. But while we concur that the aforementioned transactions are over, we would dare to say (and we are not the only ones) that, today, there are very significant opportunities to invest in Spain. Companies with financing difficulties (due to the current situation of the banking system and not because their activity is not profitable) allow equity investors, for very reasonable investment prices, to commit to restructuring and betting on the growth and internationalisation of the business. It is under this scenario in which a minor investment in equity and an effort in restructuring may turn into really amazing TIRs in the short or medium term.
The Spanish Market
The reason why Spanish distressed for healthy businesses in need of funds to restructure or to expand could be explained by some figures regarding Spain and the Spanish Market. Spain ranks seventh in the world as a destination for foreign investments and ranks ninth in scientific output (5th in the EU-15). It is a modern, innovative and competitive country with a highly developed and sophisticated infrastructure network (first European country in terms of high speed train and highway network, two of the biggest airports in Europe) and a bridge between Latin America, Europe and Africa, especially to 22 countries with more than 500 million Spanish speakers. The Spanish market is one of the biggest in Europe with 47 million consumers, in addition to the 52 million tourists who visit Spain every year. It has the highest number of double taxation and investment protection agreements with Latin America. Also, Spanish companies are leaders in the Latin American economies. These two factors make of Spain an ideal bridge to do business in Latin America and for Latin American companies to access the European markets. Its labour force is highly qualified, flexible and very dynamic. Labour costs in Spain in industry and service are half those of Germany and the UK and almost 35% less than France.
The above mentioned numbers maybe also explain why Spain is becoming an strategic hub for decision making centres for several European and Asiatic companies (Alston, British Telecom, Toshiba, Huawei, etc.), as well as Latin American (Cemex, Pemex, Itáu), which have set up their headquarters in the country.
Adequate Legal Framework
The legal framework is also being strategically reviewed by the Government, committed to cost reduction and to the quest for modeling and efficient market. Reforms have been introduced to (i) facilitate and provide alternatives to partial employment restructurings, (ii) to simplify Companies management and reduce costs, (iv) to render possible the acquisition of the assets or the business units of companies in judicial receivership (“Concurso de Acreedores”) with a very limited and even null assumption of the existing liabilities, and (iv) to reduce the tax burden of certain transactions.
Sectors to Consider
Spain offers good business opportunities in high added value sectors as:
- Information and Communication Technologies (ICT): a sector with a turnover in 2010 that reached €104 billion. Its gross added value at market prices represents almost 6% of the year’s GDP, and adding up all the indirect and induced effects, it has a positive impact on economic areas that generate a total gross added value of over 22% of GDP.
- Biotechnology, Pharma and Life Care Sciences: a sector that has 1,905 companies, employs 148,648 people and has a turnover of more than €53,152 million.
- Renewable Energy: Spain’s the world’s largest producer of solar thermal energy, leading the development and promotion of this technology, the2nd world producer of photovoltaic energy and the4th world producer of wind energy, consolidating as the 3rd technology in the electricity mix in Spain (in 2010 wind energy covered 16.4% of electricity demand).
- Environmental:a sector that has a turnover of 11,000 million Euros, with more than 2,000 companies employing 420,000 (excluding employees in the renewable energies sector) specialised professionals, with 140,000 of them working in the waste management industry and 58,000 in the treatment of wastewater.
- Aerospace Industry: Spanish firms are world-class leaders in the manufacture of composites (especially carbon fiber), gas turbine engines, and air traffic management and Spain is 5th in Europe by turnover and people employed in that sector.
- Automotive Sector: The automotive sector is of great importance for the Spanish Economy. It represents 6.2% of the Spanish GDP, 18.3% of exports and gives employment to 8.7% of the working age population. Vehicle production ranks 2nd in Europe and 8th in the world. Spanish car manufacturing plants are highly productive, and some of them are among the first 10 in Europe. In 2010 Spain produced 2.38 million vehicles and exported 87.1% of the total.
- Logistics and Transport: Spain has developed a strong logistics and transport industry due to its inclusion in the main European communication networks, turning Spain into the logistic platform of Southern Europe, with access to North African and Latin American countries. The logistics and transport sector contributes almost 5% to the national GDP. Its turnover exceeded €94,000 million in 2009. This sector has grown a 21% in the last five years.
Regarding the law firm Gallego, Martos & Quadra-Salcedo
Incorporated in 2006 by experienced lawyers coming from prestigious national and international law firms such as Clifford Chance, Cuatrecasas, CMS Albiñana & Suárez de Lezo and Cremades, the firm was born with the clear aim to become a boutique law firm merging the personal and direct attention of its Partners to Clients, generally associated to traditional small law firms, and the provision of highly specialised legal advice in Corporate Law (M&A, Restructuring, Insolvencies), Litigation (Judicial Litigation, Arbitration and Alternative Dispute Resolution), Public Law and Tax & Labour.
The Firm’s aim is to bring to the legal services sector a multidisciplinary consultancy that is focused on both the substantive and procedural aspects of corporate law, where its top priorities are to provide quality of service, legal certainty and dedicated personal attention from its Partners or Of Counsels to its selected clients.
Gallego, Martos & Quadra-Salcedo partners:
Rodrigo Martos Prat is a law graduate from the Complutense University of Madrid (UCM), with a Masters Degree in Business Law from the Complutense University of Madrid's School of Legal Practice and a Diploma in European Institutional Law, he has taught on ICADE's and Universidad Carlos III Masters programmes in Legal Practice.
A practising lawyer with wide experience in all areas of civil and corporate law, having worked in the top-ranking international law firms Cuatrecasas and Clifford Chance.
Advisor to private equity funds and investors in M&A and restructuring transactions, in 2012 he advised Aurelius AG in its acquisition of the information systems business of Thales in Spain and Argentina, among others.
Javier Gallego Larrubia is a law graduate from the Complutense University of Madrid (UCM), with a doctorate in law (Dottorato Europeo di Ricerca) from the University of Bologna, Italy, and Professor in corporate law at the Complutense University of Madrid.
A practising lawyer with wide experience in all areas of civil and corporate law, having worked in the top-ranking international law firms Clifford Chance and Cremades & Calvo-Sotelo.
Advisor to private equity funds and investors in M&A and restructuring transactions, in 2012 he advice in the full implementation (all legal aspects where involved: corporate, tax, labour and public law) of the establishment in Spain of the transport business of a private equity investor participated company, among others.
Andrés de la Quadra-Salcedo Janini is a law Graduate from at the Universidad Autónoma de Madrid (UAM) with a Master’s Degree in European Commerce Law at the Renée Descartes University of Paris (PARIS V), and studies for competitive public examination to act as Public Attorney General.
A practicing lawyer with wide experience in the direction of judicial and arbitration proceedings, in pre-litigious advice and in negotiations for settlement and alternative dispute resolution in all areas of civil and commercial Law, having worked as litigation specialist in the international law firms Clifford Chance and CMS-Albiñana & Suárez de Lezo, as well as in the Danish company Vestas Mediterranean A/S.
Advisor to private equity investors, multinationals and small/medium industrial companies, he has carried out countless litigation procedures and, in 2012, in a litigation for breach of contract for an amount over €80m.