Iberia is witnessing the early stages of a private equity revival, but the deal making remains difficult, with volatility in activity and deal values year-on-year, according to S&P Capital IQ's EMEA Private Equity Market Snapshot.
The quarterly report said that global players are aware of opportunities, while local funds were actually investing. “However, the total level of activity indicates that clear revival seems to be still some way off.”
Spain's macro-economic indicators have been “firmly positive” following post-crisis reforms, including in banking and labour markets, with unemployment falling and domestic consumption rising, and the outlook for Portugal was “relatively similar”, the report said.
It noted that KKR, Ardian and Cinven had opened offices in the region in the last year.
S&P Capital IQ said it would be logical to expect private equity investment in the region to follow the upward trend set by non-sponsor backed M&A, which has now surpassed pre-crisis levels with 1,287 deals completed in 2014 compared to 1,058 in 2008.
However the number of private equity investments in Iberia in the first nine months of this year stood at 203, down by 8.5 percent compared to the same period last year. Deal value also fell from €5.8 billion in 2014 to €2.3 billion in 2015. This is due to big ticket deals last year, including Lone Star and JP Morgan's acquisition of Commerzbank's Iberian commercial property loan portfolio for €3.5 billion.
The financial sector has attracted the most capital at €7.7 billion from 2011 to September 2015, driven by a small number of significant transactions, S&P Capital IQ reported.
US funds form the largest contingent of foreign investors in the region, with 18 investments in 2014 totalling €4.1 billion and 19 this year totalling €1.1 billion. UK funds invested in 11 transactions totalling €706 million last year and €111 million this year in six deals.
Local firms accounted for 79 percent of transactions so far this year, compared with 73 percent last year. The amount they invested rose to €399.6 million this year compared to €362.5 million last year.
The same report flagged a rise in retail investments in the EMEA region as a whole, specifically e-commerce. Firms are turning away from traditional high street retailers to more technology-focused businesses, targeting high growth firms and focusing on customer base expansion.
In 2014, 61 percent of retail investments were in internet retailers. From January to September this year, there were 85 new investments made, compared to 71 in the same period last year. Of all new investments into the retail sector, 41 percent were into retail internet companies,
PE funds have taken note of the high growth companies with high margins, low overheads and shifting consumer preferences, the report said. “Separating the wheat from the chaff will be the key to continued private equity success in the new e-retail paradigm.”
Retail has comprised about 25 percent of all investment into the consumer sector in the past 10 years, S&P Capital IQ reported. There were 102 deals in the sector in 2000 rising to 202 in 2014.
Across sectors, the amount of investment into EMEA from July to September dropped 5 percent compared to the same period in 2014, from 881 new entry deals in 2014 to 839 in 2015. The amount of capital invested plunged by 42 percent quarter on quarter to €20.2 billion. This continued a trend from Q2.
However, the consumer staples sector saw the largest increase in capital invested, with €900 million invested in Q3 compared to €300 million in the same period last year.
In terms of exits, funds realised €22.2 billion through 306 transactions in 2015, almost half the €41.8 billion realised in 331 exits in 2014. Deal sizes contracted, with the average entry transaction size at €42.1 million and average exit at €224.3 million, the report said.
The report attributed the slowdown in investment to “confidence knocked” by Eurozone uncertainties including the migration crisis. Total transaction value has decreased by a third from July to September, compared to the same period in 2014, led by eastern Europe, where deal value decreased by 90 percent to just €100 million. The total transaction value in western Europe dropped by 83 percent to €1.2 billion.
In contrast, EMEA fund investments in North America increased by 92 percent to €8.7 billion.