Spain's mid-market encounters unmatched deal flow

Worsening economic conditions are turning up more opportunities for private equity investment than Mercapital’s chief, Javier Loizaga, has ever seen. The former EVCA chairman says the next two years will be the ‘best vintages ever’.

The two traditional sources of deal flow for Spanish private equity firms – large corporates and family business-owners – are now both more willing to sell assets, according to chairman of Mercapital Javier Loizaga. As a result, the Spanish mid-market investor has seen an unprecedented glut of investment opportunities.

“We have never seen better deal flow,” said Loizaga in an interview with PEO’s sister publication Private Equity International. “This year and next will year will be all entries and no exits.”

For those families who were reluctant to sell at lower prices: reality bites

Javier Loizaga

Given the recent deterioration of economic conditions, family business-owners, who were intending to postpone their exit until conditions improved, are now faced with the possibility of a longer and deeper recession, causing some to consider cashing out.

“For those families who were reluctant to sell at lower prices: reality bites. They are not necessarily distressed, but they are certainly conscious that the values they saw two or three years ago will not return for a very long time,” said Loizaga.

On the subject of increased divestments from large conglomerates, Loizaga said: “A few multinationals are selling good Spanish companies in order to refocus their investment efforts on Eastern Europe or Asia.”

Mercapital has made five investments during 2008: three buyouts and two minority stakes. This is in contrast to the previous two years, in which the firm only made one.

“The next two or three years will be the best vintages ever,” said Loizaga.