Foreign funds take advantage of low prices and account for 80% of purchases in Spain

Names like Carlyle, CVC, Permira, KKR or Cinven may be unknown to a large part of the Spanish population. However, they are present in our daily lives by making small gestures: when pouring gasoline at Cepsa, watching a LaLiga football match, buying clothes at Cortefiel or eating at Telepizza and Burger King. Spain has become one of the great investment poles for venture capital, which has disbursed so far this year 4,844 million euros in national companies, according to the employers of the sector (Ascri). Of this amount, 80% comes from international funds. But what is it about domestic companies that attracts them? “Our interest does not respond to a single criterion, but to the sum of many factors that have developed in recent years & rdquor ;, a manager of an international venture capital fund with an office in Madrid explains to EL PERIÓDICO DE ESPAÑA.

“In the first place, Spain it is not such a crowded market Like others in the environment where venture capital has been investing for longer, company prices remain reasonable in most sectors. In addition, the previous economic crisis served to screen between good companies and not so good ones. The survivors did their homework and learned a lot from that period, today Spanish entrepreneurs are more prepared than a few years ago and more and more people are encouraged to set up their own project. Spain has many very innovative and interesting medium-sized companies. On the other hand, the average size of companies generates many and more varied opportunities for us: when we enter a Spanish company, we have many levers to make it grow and develop. From supporting them in their growth abroad to helping them in certain issues related to the professionalization of the business. In the end, what we do is more than just buying a company to sell it. We want to unleash its full potential and make it a world leader in its sector & rdquor ;, he adds.

And it is that, contrary to the generalized thinking about this type of investors, the venture capital strategy goes beyond buying cheap, putting a tight control on the management of companies and then selling them more expensive. During the previous economic crisis, the companies in which these funds hold created 32% more jobs and they had sales almost 19% above those that did not have this shareholder profile, according to a study by Ascri on the economic and social impact of Private Equity. “Now the way we approach acquisitions has radically changed compared to a few years ago. Our investors are increasingly demanding with regard to what they look for in a company, so our investments must be strongly supported by business plans and sustainability criteria & rdquor ;, continues the said manager.

Spain, the ‘pretty girl’ of Europe

Venture capital funds are dedicated to managing the savings of pensioners, insurance companies, American universities or private banking clients. While a few years ago it was an asset little known and limited to a few, the proven success stories and the high returns offered compared to other financial products (from stock investments to real estate purchases) have made it democratize to a large extent of the world economy. For example, in the case of Spain, the CNMV has been working for a long time to lower the minimum investment ticket required by these funds to the 100.000 euros. This has served, in turn, to generate waves of liquidity in the sector worldwide, at a time when low interest rates have also favored the capture of resources for these investors. Currently, the amount of money available to invest from venture capital funds worldwide amounts to 2.9 trillion dollars (2.49 trillion euros, at the current exchange rate), according to data from the consulting firm Bain & Company . A figure that grows dramatically every year.

In this context, Spain has been one of the countries that has benefited the most in recent years due to the shorter journey that the sector has had compared to other neighboring countries. France, the United Kingdom and Germany have been the three great cradles of this sector in Europe, which has caused their markets to be more overcrowded (greater competition translates into higher prices) and their companies more well-worn (which takes away their travels). growth). Thus, in recent years there has been a avalanche of arrival of new funds to Spain with a multitude of approaches: from those who invest in startups to those who do it in infrastructures passing through those who are exclusively dedicated to providing financing without entering into the management of the companies.

The almost 5,000 million euros of investment until September is 18% more than the figure registered in the first nine months of 2020, the year in which the coronavirus pandemic stopped in its tracks the consecutive records reached in Spain in recent years. The biggest was just in 2019 when venture capital mobilized about 8,500 million euros in the country. However, as the uncertainties about the recovery are cleared, the appetite of these investors increases and everything suggests that new historical records will arrive in the coming years. For the great advisers of corporate operations in the country this trend is unstoppable. According to Álvaro Revuelta and Jorge Ramos, co-heads of Investment Banking at Citi for Spain and Portugal, “we continue to see venture capital funds and infrastructures very interested in the different sales processes underway, as well as positioning ourselves in the new ones that are about to hit the market & rdquor ;.

By region, the size of the companies in Madrid and Catalonia makes them the two main investment poles in Spain, followed by Valencia, the Balearic Islands, the Basque Country, Andalusia and Galicia. The search for lesser-known companies has led a good part of venture capital funds (especially national ones, which are looking for smaller companies) to visit much of Spain and its industrial estates to find sector leaders to which to dedicate their resources.

Renewables, ‘telecoms’, consumption & mldr;

Regarding the sectors in which this type of investors invest, the renewables business has become one of the most interesting, in the heat of a regulation that has favored this type of investment and the commitment to decarbonization of the Spanish economy. Wind and photovoltaic have aroused the love in equal parts of these investors, who now have more doubts about buying other types of assets related to traditional electricity generation in full discussion between the Government and Spanish energy companies about who will pay the increase in the price of electricity . For Ignacio Hornedo, M&A partner at Allen & Overy, “there is no greater enemy for foreign investment than legal uncertainty. We have been explaining to our clients for years that the regulatory framework in Spain is already stable and that regulatory changes were a thing of the past. The now famous Royal Decree 17/2021 changes our pace a bit in this sense & mldr; But, having said that, the impact is being moderate: operations continue to close and those that are advanced continue their course. Obviously there is concern, but there is also a clear consensus that the renewable sector is a firm, long-term commitment with political support that exceeds the merely national & rdquor ;.

Another of the most interesting businesses is that of technology and telecommunications. The pandemic has accelerated digital transformation worldwide and Spanish companies were not going to be less. For this reason, higher prices are being paid by companies with a true technological component, which has also made them more resilient during the almost two years of coronavirus. To this phenomenon must also be added the arrival of new services such as 5G, which require large investments and which can cause traditional telecommunications companies to open their shareholding to this profile of investors. So far this year, MásMóvil (owned by KKR, Cinven and Providence) has launched a takeover bid for Euskaltel, Red Eléctrica has launched a process to place part of its optical fiber among financial investors and Telefónica has sold its data centers to Asterion . Relevant operations in an industry in which a significant consolidation is expected in the coming years, in which venture capital will play an important role.

There are also three other sectors that stand out from the rest thanks to their behavior in the face of the pandemic: consumption (especially food companies), health and education. For example, the Spanish agricultural world has experienced a real investment boom in recent years: from lemons to grapes to potatoes. The funds look for leading companies in their niches to merge with smaller ones, in such a way that larger companies are generated that obtain better prices and become professional. One of the latest operations in this sector has been the one carried out by Fremman Capital, a fund owned by Santander, which has bought The Natural Fruit Group (a citrus company) for around 300 million euros. In healthcare, after the consolidation of the hospital business in previous years, the funds are now looking for opportunities in specific niches ranging from fertility clinics or laboratories to orthopedic companies. One of the most curious examples in recent months has been that of Suanfarma, a company that manufactures raw materials for the pharmaceutical or nutritional industry, which has just been acquired by the French Archimed fund (specialized in health) for 550 million.

Education, for its part, has experienced a real investment avalanche in recent years that has materialized in million-dollar acquisitions such as that of the Alfonso X El Sabio University by the British CVC, which disbursed 1,000 million euros, or that of Laurates Education Group (European University), in the hands of Permira after disbursing 700 million euros. However, beyond these, the bet of one of the best known Spanish funds: Magnum Capital is striking. This firm has developed a platform, Digital Talent, which wants to become a reference in digital training in a multitude of branches: from Marketing to Law through VET. Alberto Bermejo, partner at Magnum Capital, explains that “the education sector has always received great interest as an investment destination. The main reason for the large number of operations we are seeing is their resilient nature and the appearance of new business models (for example, online), which has allowed these companies to grow significantly in recent years. However, the owners of educational companies are seeing that there is demand and, therefore, it is a good time to sell & rdquor ;.

Related news

The success story of startups

In any case, if there has been a great winner in terms of the investment received, it has been the startup universe, which has chained years in a row in record numbers. Until September, more than 1,228 million euros have been mobilized for Spanish entrepreneurs in a total of 552 investments. The latest success stories in the country (Idealista, Glovo or Job & Talent, among others) have aroused the interest of international funds, which have discovered in Spanish projects some of the most innovative ideas in the entire Old Continent. In addition, as experts indicate, as funding increases, there will be more success stories and this will attract more money to start new companies.