Elections provide Spanish PE glimmer of hope

Spain’s private equity community is anticipating a more business-friendly government as the conservative People's Party is expected to dethrone the Socialists from power in November.

From pledges of tax cuts to privatisation plans, Spain’s right-wing Popular Party (PP) could be a boost to the region’s slumbering private equity market, said sources operating in the country.
The incumbent Socialist party faces a tough test from the challenging PP party when elections will be held 20 November. At the time of press, polls showed the conservatives capturing a parliamentary majority with 47 percent of the vote compared to 32 percent for the Socialists, according to an early September survey by Spanish daily newspaper El Mundo.

The PP has vowed tougher measures to cut the debt and continued privatisation of public assets – both of which would encourage M&A activity

Juan Picon

“The PP has vowed tougher measures to cut the debt and continued privatisation of public assets – both of which would encourage M&A activity”, said Juan Picon, a lawyer in DLA Piper’s Madrid office.
The wheels on such reforms have already begun moving in favour of the conservatives. In early September a constitutional amendment was agreed by both major parties to cap future budget deficits. Plans to sell state-owned airports and a lottery business will further nourish Spain’s private sector, said one Madrid-based GP.
Only €897 million was raised for Spain-focused funds in 2010, roughly on par with a lacklustre 2009 fundraising period, according to statistics from the Spanish private equity association, Asociación Española de Entidades de Capital Riesgo (ASCRI). However, when including a new €300 million state-backed fund and Spanish investments made by international funds without any country-focus (and thus not included in prior Spanish fundraising figures) the 2010 total climbs to €3.2 billion.
But the greatest benefit of the election will be increased political certainty, said a separate Madrid-based fund manager. “A lot of [private equity] houses are on a wait and see mood. Deals in the pipeline are waiting until after the elections so there is less uncertainty as to what ideas or policy changes will be brought forward.”
Public pledges have also been made by Mariano Rajoy, the PP’s leader, to introduce labour reforms and an entrepreneurial bill designed to spark job creation if placed in power. “Tax incentives for small and medium businesses and more liquid labour markets will be a boost for Spain’s private equity houses,” said Picon.
For more on the state of Iberia’s private equity markets, see a full-length analysis in the October edition of Private Equity International.