| Q&A | Septiembre 2022 | TTR Dealmaker with Cases & Lacambra Corporate M&A Partners |

TTR: How would you describe the current situation of the players in the M&A market in the country with the current global economic situation in this year? 

For the first time in the past ten years, it appears that geopolitical instability, the increase in interest rates and energy prices, together with rising inflation, could become factors which may slow down M&A transactions in Spain in 2022.

Nevertheless, we believe that there are three main reasons for us to remain optimistic: firstly, the Spanish market has been on the radar for major investors for some years; secondly, we have seen record numbers in terms of private equity fundraising over the last couple of years (which will necessarily bring transactions to invest such accumulated liquidity); and, lastly, medium-sized funds have been very active in buying companies and carrying out build-ups for the past four or five years, therefore many M&A transactions are expected to be initiated to channel the divestments of said funds.

With regards to Latin America, the situation certainly differs depending on the country. The activity in several Latin American economies remains strongly influenced by the current changing local political situation. A recurring trend over the last few years is Miami becoming an increasingly important international hub, bringing together remarkable Latin American investors, often to channel their investments to Spain and the rest of Europe in various sectors.

TTR: What are the most relevant drivers for consolidating the M&A market in Spain these coming months in 2022? 

From our point of view, when facing geopolitical and economic changes, a certain degree of uncertainty is expected, and companies and investors need some time to calibrate their response to the new scenario. Once this uncertainty can be properly assessed, the pace of M&A transactions can be expected to resume, as it has in the past. Only time will tell.

The aforementioned uncertain environment may possibly lower sellers’ price expectations or accelerate divestment decisions, which may in turn stimulate transactions that have not been initiated until now due to discrepancies in valuation. Furthermore, companies with a solid cash position may seize the moment to strengthen their position by integrating companies at more attractive prices to create synergies.

TTR: Which sectors could offer the greatest opportunities for international investors in Spain in the short term? Why? 

During the first half of 2022, we have seen that the energy sector continues to lead M&A transactions (accounting for almost 30% of transactional activity). We believe that it can continue offering opportunities —for both investors and large industrial groups—, especially in the renewable energy sector (including increasingly sophisticated self-consumption structures, especially for large-scale industry).

We have also been observing how the real estate sector represents 25% of M&A transactions, in many cases due to the progressive reactivation of tourism in Spain. This trend could continue given the positive data from the holiday season and the development of major urban planning projects in several Spanish cities.

On the other hand, during these first few months of the year, there has been considerable activity in the TMT sector, where we have seen new company valuations policies (as uncertainty about the future seems to be much greater than in 2021 and investment is sought in companies which are clearly on the road to profitability).

Finally, we believe that there may be interesting transactions in sectors of significant importance for the Spanish economy (i.e., agribusiness), in which there are a multitude of differently sized companies, as well as growing sectors in which there are increasingly more build-ups (i.e., healthcare), and in sectors in constant evolution and consolidation (i.e., financial sector).

TTR: Could there be any structural change in the M&A market in the face of recession fears? What are the trends? 

It is worth highlighting the new Law 16/2022, of 5 September, on the reform of the consolidated text of the Bankruptcy Law (Ley 16/2022, de 5 de septiembre, de reforma del texto refundido de la Ley Concursal), which introduces new features in the pre-insolvency regime (specifically, measures to facilitate debt restructuring at an earlier stage when the debtor company is deemed “likely to become insolvent”), in the sale of productive units by the debtor company (the so-called “preparatory procedure” (procedimiento preparatorio), as well as in the regulation of debt refinancing transactions backed by the Spanish Official Credit Institute (Instituto de Crédito Oficial), among others.

In particular, the new regulation on the sale of productive units of the debtor company in the pre-insolvency phase could open the door to numerous M&A transactions, even prior to filing for bankruptcy proceedings, since the debtor company deemed “likely to become insolvent” may request the judge to appoint an independent expert responsible for seeking offers for the acquisition of productive units aimed towards avoiding the deterioration of the activity and maximising recovery for creditors.

This new regulation has not been without its critics. Caution is needed and, as with any new regulation, we will not be able to evaluate its real impact in the M&A market until its practical application.

TTR: Cases & Lacambra is one of the leading legal firm in the M&A market. What will the main challenges for Cases & Lacambra be in terms of M&A deals in Spain in the next months? 

Continue working for our clients with the highest level of agility, flexibility and excellence, taking advantage of our positioning in the transactional market as a medium-sized full-practice firm. Furthermore, we intend to stay close to our clients, continuing a permanent dialogue which allows us to jointly understand and analyse their main challenges and concerns, providing them with ideas, solutions and sector expertise, and to collaborate with them in achieving or overcoming such challenges and concerns, as the case may be.