First-half 2022 M&A Deals in Spain Continued at Fast Pace; Opportunities Abound in the Second Half

Coming off a record year of dealmaking globally, 2022 still has a chance to be one of the better periods of activity in several years. In Spain, Mergers and Acquisitions (M&A) continued their momentum from 2021 with 382 deals announced in the first half of 2022. That’s nearly identical to 2021’s 384 first-half deals.

Corporate transactions led the pace this year with 221 announcements, but private equity (PE) backed deals (161) continue to be a catalyst of growth. PE continues to grow in market share in European M&A, with more than a third of deals in Q2 closed by a PE sponsor, according to PitchBook.

The first half of 2022 has been dynamic, with activity in both quarters at roughly the same level. Record dry powder and the rise of private credit funds are keeping the deal environment moving despite a range of near-term risks. The second half of the year may be a different story.

Still, the number of deals could have been higher. Significant headwinds most likely delayed or halted some projects. Current market conditions are hindered by several economic and global health factors, including:

Interest rates: Rising rates are translating into higher costs to fund M&A activity, a scenario that’s predicted to continue into the near future.

Inflation: Higher prices throughout the value chain are putting increased margin pressure on companies, who are paying more to transport goods, provide services and deal with rising energy, raw material and labour costs. 

Pandemic impacts: Covid lockdowns in certain areas of the world also add uncertainty for dealmakers as companies search for alternative and reliable supply chain solutions.

Shortages: Inability to acquire needed materials, goods and parts affects a company’s ability to reliably predict costs and deliver products.

Despite these challenges, deal activity continues near all-time highs heading into the summer of 2022, and the market has a backlog of potential deals, something which may be due to anticipation of higher funding costs for projects.

Spain M&A By the Numbers

Aggregate disclosed deal values for the first half of 2022 reached €38.7 billion, down from €45 billion during the same period the previous year. Second quarter total deal value was €21 billion, on par with the second quarter 2021 total of €19.6 billion.

Globally, deal values are down 20 percent compared with the first half of 2021 according to the Harvard Law School Forum on Corporate Governance, which predicts a further slowdown through the end of 2022 as dealmakers face one of the most challenging environments in recent history. The publication also reported that deal volumes and values across Europe fell 12 percent and 33 percent, respectively. Lower investor confidence and high energy costs are likely to blame.

Notable Deals in Spain

A few companies headlined M&A news during the first half of 2022. Among the most notable and largest disclosed deal values were:

• Carlyle: The PE firm’s sale of Cupa Group to Brookfield for about €900 million, as well as its €1.9 billion acquisition of Altadia, one of the world’s largest producers of ceramic tile.
• CapVest: The investment group’s acquisition of Spain-based chocolatier Natra for approximately €500 million.
• KKR: The North American venture capital heavyweight’s acquisition of IVI, the Spanish fertility treatment provider, for €3 billion.
• Antin Infrastructure Partners: The French PE firm’s sale of Lyntia Networks, a local operator of fibre optic networks, including dark and lit fibre networks, to AXA and Swiss Life for about €2 billion.

Valuations Remain Lofty

The appetite for deal making in Spain will continue, but in the long term, supply chain disruptions from the Russian-Ukraine war may further affect deals. The shift in the energy and gas sector resulting from the war may be a factor impacting deals going forward.

For all these reasons, as well as pent-up demand for M&A activity coming out of the initial throes of the pandemic, valuations continue to be high, leading to a wide gap in expectations between the seller and the buyer.

Until prices adjust to current economic conditions, expect valuations to remain lofty. Double-digit multiples remain commonplace, particularly for assets in the technology field or in high growth sectors.

Our View on the Coming Months in Spanish M&A

Over the past few years M&A activity has had tailwinds due to unprecedented liquidity. With the cost of funding increasing and valuation expectations rebalancing, the second half of 2022 will not likely be as positive as the last semesters.

However, we see still plenty of opportunities due to:

• Sector diversity: Some sectors are less exposed to the different economic and events impacting the global economy.
• Resilient industries: Those sectors considered more strategic or defensive, such as healthcare, pharma, technology and education, among others, can still be resilient under the current macro and geopolitical scenario.
• Critical sectors: Also, energy and infrastructure remain essential for the economy, and we will probably continue to see a lot of deals in this space, especially in the form of joint ventures.
• Dry powder: Private Equity has a lot of dry powder and investors will require General Partners (GPs) to put their money to work, especially considering the lack of better alternatives in the market due to inflation and market volatility.
• Growth companies: Family-owned business will continue to turn to PE houses as their best partner to accelerate growth, support them with their internationalization and digitalization strategies, and in some cases, with their professionalization.
• Carve-outs: Big conglomerates will begin re-thinking about what is core and non-core for them. Therefore, we should start seeing some carve-outs or divestments of non-strategic businesses.
• We can also see some take privates due to low market valuations of some healthy assets.
• Regulation: Last but not least, the new “Ley Concursal” that the Spanish government has just approved will foster what is called “loan to own.”

All in all, the Spanish M&A environment is a blend of uncertainty and opportunity.