CDI Global

M&A Market Trends in Spain and Portugal

In this CDI Member Spotlight, CEO Jeff Schmidt sat down with Carmelo de las Morenas, senior partner of CDI Global Iberia, to discuss the current M&A trends and opportunities emerging in Spain and Portugal.

Jeff:  Hi Carmelo, thanks for joining us. Can you give us a little background information on yourself and CDI Global Iberia?

Carmelo:  Thank you Jeff, and good evening from here in Madrid! From business school I started out working with investment banks like Goldman Sachs and Lehman Brothers. In 2003, along with two of my founding partners, we started our own M&A firm covering the region of Spain, and eventually expanding to cover Portugal as well. Five years ago, we joined the CDI Global network and became CDI Global Iberia. All of our managing partners have over 15 years of experience in M&A, with a range of industry experience including healthcare, tech, food, tourism, construction, and packaging.

Jeff:  Tell us a little about the middle market in Spain and Portugal; what sectors are most important for those transactions? Are there a large amount of private equity firms?

Carmelo:  We have a number of private equity firms very active in the market. Every week we get calls asking for opportunities to invest their funds, particularly in the telecommunications and technology sectors. Even with the slow down due to COVID, we had a bump in the fall. Recently a Swedish equity firm made two acquisitions in Spain, and we’ve seen some large deals in the Spanish healthcare market. While TMT and tourism had a decline, automotive, food, packaging and industrial have maintained key market positions.

Jeff: I recall industrial and construction were very active in Spain, have they been able to stand up to the changing economy from the pandemic?

Carmelo:  Real estate and large construction companies reinvented themselves after the 2008 crisis, and many looked for opportunities abroad. Real estate has actually been the most active sector this past year in Spain despite the overall reduction in deal flow, still capitalizing on their connections out of country.

Jeff:  What are the trends in buy-side interests within Spain and for cross border transactions? Where do Spanish companies tend to look outside the country for revenue diversification?

Carmelo:  For cross border opportunities many Spanish investors have turned to Portugal and other European countries. For inbound transactions the United States has been the biggest country closing deals, with the UK and France closely following. Along with telecommunications, media technology and healthcare, the financial and renewable energy sectors have had a lot of opportunities for investors looking at Spain.

Jeff:  We are finding that many companies that have been adversely impacted are reluctant to sell if they feel they can’t get full value and hope to wait a year or two to recover. Buyers also have shown hesitation because they don’t want to overpay in a down market. What kind of advice or insights do you have for clients about waiting or seeking out opportunities in this environment?

Carmelo:  We have a lot of smaller sized companies in Spain, so we often suggest merging with other companies to create stronger brands and expand outside of the country. Spain’s economy has been strong over the last few years, which can still be leveraged through this crisis. There are still plenty of funds available, the market is liquid, and interest rates are low, so it’s not a bad moment to be proactive.

Jeff:  What are some of the keys to acquiring strategically good targets in Spain and Portugal verses the rest of Europe?

Carmelo:  There are nuances to every market, so having an extensive international network like CDI Global is a real benefit. Understanding the competitive landscape, local environment, and the legal aspects like government regulation and taxes is essential.

Jeff:  Concerning local government in terms of tax policy and foreign investment, is it positive or negative for deal making? Is it a good place for international companies to invest?

Carmelo:  Spain was one of the first countries to privatize the energy, oil and gas, and telecommunications sectors, so Spain and Portugal have been very open to foreign investments in those industries. Automotive and tourism have been hit hard by COVID, so there is danger that government taxation policies to aid those industries will affect deal making down the road.

Jeff:  Is there a lot of competition in the Iberian M&A marketplace?

Carmelo:  Depending on the size of the transaction you can have some of the major banks in play, but for middle market deals it tends to be similar local boutique firms. The extensive CDI network really sets us apart and gives us a stronger value proposition than a lot of the other mid-size firms. 

Jeff:  Over the next couple years how do you see CDI Iberia continuing to grow in the market?

Carmelo:  It depends a lot on the market and how long the COVID economic crisis continues. We are still seeing a lot of Spanish businesses growing and moving abroad, so we will continue to leverage cross-border opportunities. If not for the pandemic, 2020 would have been a strong year economically for the Iberian Peninsula, so we expect Spain to come back strong when markets recover.

Jeff:  Thank you, CDI Iberia has an outstanding leadership team with an impressive array of industry expertise. In 2019, CDI Iberia was a leader in cross-border transactions in our CDI network. We look forward to the exciting opportunities your team continues to deliver in Spain and Portugal.

Carmelo:  Thank you, we are looking at a lot of upcoming deal flow and cross-border transactions. We love being part of and contributing to the CDI Global network.

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