Rollercoaster ride

As is the case with private equity in most European countries, the Iberian market has little in the way of positive economic indicators to warrant feelings of optimism. Despite all the major local banks in the region passing the well publicised European stress test in July, Spain and Portugal are still in the process of implementing painful austerity measures in a bid to stave off the notion that they might soon follow Greece in seeking European Union help to prevent a sovereign default.

Data from the Spanish private equity association, Asociación Española de Entidades de Capital Riesgo (ASCRI), shows that 2009 was another disappointing year for the sector. “New fundraising was difficult and limited, and divestments just didn’t seem to take off,” writes ASCRI chairman, Ramón Cerdeiras Checa, in his introduction to the trade body’s 2009 review.

Fundraising in 2009 was down 56 percent to around €1.2 billion, and the amount of capital put to work in Spain hit €1.7 billion – down 46 percent from 2008. These statistics, however, still fare better than Europe as a whole, which saw fundraising for all private equity houses fall by 80 percent year-on-year and total investments drop by 57 percent, according to the European Private Equity and Venture Capital Association (EVCA).

While Iberia is still burdened with a crisis of confidence, the general economic malaise has not deterred GPs – those still standing – from hunting for opportunities in the region. In fact, for some, there’s never been a better time to invest.


Pan-European firm Doughty Hanson has been present in Madrid since 2006. Francisco Churtichaga, who heads up the firm’s Spanish operations, dismisses the notion that the country’s grim newspaper headlines and 20 percent unemployment rate have made it impossible to get money to work.

“When you talk to the people in the market, this gloom scenario is very far from what we are seeing,” he says. “Our portfolio companies have continued to grow EBITDA without problem in the recession.”

Roughly 60 percent of Doughty Hanson’s portfolio historically is comprised of family businesses. While investment opportunities have been scarce in 2010 and many families did not want to sell at prices the firm was offering, Churtichaga is anticipating an uptick in deal flow in 2011 and 2010. “I think eventually the prices will come down and it will be a very good time to buy,” he says.

At Southern Europe-focused Investindustrial, senior partner Carlo Umberto Bonomi views the economic downturn as the perfect time to invest, as many other private equity firms that would normally be competing for opportunities have been forced to take themselves out of the game. “Half of [Spanish GPs] and are licking their wounds, trying to manage the portfolio companies that are not performing,” he says. “So they’re not investing.” Managers at many of Investindustrial’s portfolio companies, Bonomi says, are now asking for more equity to seize the opportunity to acquire small- to medium-sized companies.

The firm made headlines in April by selling a minority stake of Spanish helicopter fleet business Grupo Inaer to Kohlberg Kravis Roberts in a deal valued at roughly €670 million. Investindustrial acquired 75 percent of Inaer in 2005 for approximately €180 million. Since the acquisition, the company has grown its revenues by 2.4 times to more than €300 million and increased EBITDA by more than 3x, as of 30 April. Inaer is expected to deliver an adjusted EBITDA of €85 million for 2010.

“In the midst of Spain appearing to implode, we attracted one of, if not the best investor, KKR, to invest in a company,” Bonomi says. “Even in the worst moment, there are opportunities.”

Investindustrial’s most recent investment in Spain was a €95 million purchase for a 50 percent stake in Barcelona’s PortAventura theme park in September 2009. The deal, which included additional undisclosed financing from La Caixa, was “Spain’s largest deal in 2009 by enterprise value”, an Investindustrial spokesman said at the time.

The key set of skills in today’s market, Bonomi says, is maintaining relationships with local banks. “If you want to buy company A, who’s been around for 50 years in Barcelona for example, when you go and ask a UK bank to finance it, they won’t know the company. They’ll have to go through the due diligence,” he says. “But if you go to the [Spanish] savings bank, it’s a different game. Often the bank has an existing relationship with the company having provided corporate banking services for decades.”


Recent data released by Portugal’s central bank shows just how close to paralysis local institutions came this year: until May, Portugal and its banks were unable to obtain long-term debt from foreign investors, leaving the European Central Bank (ECB) to plug the gap, lending unprecedented amounts to Portuguese banks and going large on Portuguese sovereign debt.

To get an idea of how averse international investors are to being exposed to Iberian country risk, one need look no further than European private equity firm CVC Capital Partners’ purchase of a 16 percent stake in toll road operator Abertis from Spanish infrastructure group ACS.

Initially touted as a €12 billion leveraged buyout involving ACS and La Caixa – Abertis’ main shareholders – together with CVC, the buyout was set to be financed with €8 billion of debt and €4 billion of equity from the consortium.

But as it turned out, many of the banks approached by financial advisor Mediobanca were queasy about having any exposure to Spain, cutting the size of the debt package to just over €5 billion. Even that figure became too troublesome, with the transaction morphing from a €12 billion mega-buyout to a more modest purchase by CVC of part of ACS’ 25.8 percent stake in Abertis.

Of the 14 to 20 banks originally said to be looking at the deal only four – La Caixa, Mediobanca, Societe Generale and Santander – ended up financing the stake purchase with a more diminutive €1.5 billion debt package.

“If you compare it to the situation prior to 2007, generally speaking in the market, banks are lending but [with] lower multiples, higher margins and very deep due diligence,” says Alfredo Zavala, founding partner at Realza Capital, a spin-out from Spanish private equity firm Mercapital.


In August, Sun European Partners, the European affiliate of US-based Sun Capital Partners, acquired Madrid-based independent toymaker Famosa for an estimated €100 million. The firm has made investments in companies throughout Europe, including in the UK, Germany, Belgium, France, Italy and the Netherlands, but had never before invested in Spain.

“I’m actually now proactively spending time in Spain looking for opportunities because I do believe that we’re at the bottom of the cycle and I do believe this is a good point in which to be picking up assets,” says senior managing director Michael Kalb.

Kalb also views the Spanish government’s support of the country’s banking sector as an indicator of more opportunities to come. “Given all the further restructuring that is going to continue in the Spanish market, where banks are essentially forced to consolidate, that is actually going to drive further write-offs and will actually have the opportunity to drive more deals being generated than what I’m seeing in other countries.”

Iberia’s economic cloud may yet have a silver lining.