Globally, the second half of 2022 is witnessing a decrease in M&A deals. This trend is also taking place in the Spanish market. Various factors have inhibited the great boom and optimism seen in 2021, including:
With the outbreak of economic crises, companies and investors are taking a more cautious approach to their operations.
The data is clear: globally, the total value of deals made in the first six months of 2022 is 20% lower than in the same period last year. This decreasing trend has also been seen in Spain, although to a lesser extent. A total of 222 private equity (PE) transactions for €36.3 million were recorded up to August 2022,(1) representing a 14% increase in the number of transactions and a 79% increase in value compared to the same period last year. Venture capital generated 380 transactions for €3.8 million, a decrease of 18% in the number of transactions and a decrease of 20% in value year-on-year.
Real estate has been the most active sector so far this year, with a total of 435 transactions and an increase of 45% compared to the same period in 2021, followed by the internet, software and IT services sector, with 213 transactions and a decrease of 12%.
Worldwide, the volume of deals has remained high, with similar numbers to those recorded before the covid-19 pandemic (between 2017 and 2019, around 50,000 deals were recorded per year.
Another significant factor to consider is the relevance of PE funds in M&A, which make up nearly half of the transactions registered so far this year. This shows that the interest of many financial players has grown in the post-pandemic era, and they have a relevant mass of “dry powder” for investing, which has increased significantly in the last few years.
In terms of the world’s most valuable deals made in 2022, three tech, media and telecoms (TMT) companies are among the top six: Activision Blizzard, Inc, VMware, Inc and Twitter, Inc. This indicates that the TMT industry continues to be a major player in global transactions.
Furthermore, special purpose acquisition company (SPAC)(2) activity has decreased globally: 70 SPAC initial public offerings have been registered this year, compared to 320 in the first half of 2021. In Spain, however, the regulation of SPAC is still in process, with no activity yet.
Inflation is decreasing the volume of transactions and generating a lot of uncertainty among investors. The cost of finance has also increased significantly.
Fewer transactions in Spanish market
In comparison to last year, the volume of transactions registered in Spain in 2022 has also decreased by 10%.
According to a report published by Transactional Track Record in collaboration with Intralinks, a total of 2,001 mergers have been registered in the Spanish market, amounting to a value of €88.81 billion. This amount represents a 6% decrease of the total transaction value compared to last year.
Real estate was the most active industry with regard to transaction activity, followed by the IT, internet and software industry, and the business and professional support services industry.
Spanish foreign investment and transactions have been most interested in the United States, the United Kingdom and Portugal. Most foreign investors in Spain originate from the United States, United Kingdom and France.
There has been a 12% increase in PE fund transactions in Spain, with the total value of these transactions amounting to of 49%, compared to the numbers registered in 2021.
The number of venture capital transactions has decreased this year by 15%, and the total value amount by 27%.
Risk faced by players in Spain
Rising inflation and increase of interest rates are also affecting citizens and companies in Spain significantly. The so-called “transaction boom” that happened in 2021 is not expected to be repeated this year.
In addition to inflation and funding costs, private and public investors are facing the supply crisis caused by:
However, the subsequent adjustment is not comparable to the sharp downturn experienced in 2007. Companies and investors have learned. While in 2021 there was only one transaction over $50 million, in 2022 there have been four transactions so far, with one more likely on the horizon.
According to the Ministry of Industry, Trade and Tourism, in the first half of 2022, gross foreign investment flows increased by 87.7% compared to the same period in 2021. Spain therefore remains a particularly attractive country to invest in.
Recently, US and UK investors have “closed for business” with regard to European investment. It remains to be seen whether this is a prudent and temporary measure or whether it will last over 2023. European investors, however, are still interested in Spain.
Interest in investing in Spanish companies has increased by 4% compared to last year. This year is set to bring opportunities for investors who can detect companies that could avoid unfavourable economic circumstances.
Given the prediction of a drastic decrease in consumption, industries such as technology and healthcare will stand out in the context of M&A. Spain has leading companies in their respective sectors. Depending on the performance of the Spanish economy and consumption in the last quarter of 2022, large transactions remain possible.
Comment
In times of uncertainty, it is important to focus on high-potential transactions and the long term, and not to be concerned about the current market situation. It is advisable to invest in high-quality due diligence to better predict the projections of the companies involved in a transaction.
Industrial investors continue to bet on Spain in their respective industries. In short, the M&A market in Spain remains active despite geopolitical uncertainties and the macroeconomic outlook.
For further information on this topic please contact Marta Gil De Biedma at López-Ibor Abogados by telephone (+34 915 21 78 18) or email (marta.gildebiedma@l-ia.com). The López-Ibor Abogados website can be accessed at www.lopez-iborabogados.com.
Endnotes
(1) Transactional Track Record (TTR).
(2) A SPAC is a company incorporated for the purpose of acquiring or merging with another company.