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Iberian M&A activity finds good rhythm ahead of 2021

Large listed companies explore disposals and M&A, as investors with dry powder do homework on targets ahead of FY results

Iberian M&A has been hitting a good rhythm as 2020 comes to a close and the prospects for the music to keep playing in 2021 appear good, top dealmakers said.  

Deal activity has been picking up steam since September as appetite for risk returns, according to Carlos de Abajo, managing director of Bank of America, one of the region's top-ranking banks. This sets the scene for a strong year ahead, he said.  

Valuations have begun to price in post-COVID recovery scenarios, de Abajo said. The pipeline of deals is also helped by buoyant liquidity, which is helping drive demand from financial investors, he said.  

The Iberian deal pipeline for 2021 is carrying a good deal of momentum from the end of 2020, Jorge Ramos, co-head of Iberian Investment Banking at top-ranking bank Citi, agreed.  

Auctions in the pipeline going into 2021 include Spanish renewable business Helia Renovables, which is expecting non-binding bids next week, and Portuguese packaging company Logoplaste, which will see non-binding bids in January, as reported by this news service.  

One driver for M&A involves large, listed companies pursuing active M&A strategies, including disposals and investments, Ramos said. This will be particularly significant in the energy sector, he added.  

Examples include companies like Repsol [BME:REP] and Telefonica [BME:TEF]. Oil company Repsol is seeking minority investors or IPOs for its renewable energy division, as well as for its three other business areas, upstream, industrial, and consumer-centric, as reported. Meanwhile, telecoms company Telefonica is also looking at carveouts, as reported.  

Some corporates will come out of the crisis in a strong position thanks to the cheap availability of financing but others will have to face negotiation of waivers to avoid debt breaches as the year comes to an end, Alvaro Revuelta, the other co-head of Iberian Investment Banking at Citi, said.  

YTD data ahead of 2019  

The combination of access to financing on one hand and the increased need to sell on the other hand means the pipeline for Iberian M&A in 2021 is looking healthy, Michael Willisch, partner of top-ranking law firm Davis Polk & Wardwell and head of the firm’s Madrid office, said. The coming year is likely to have more in common with the recent recovery than with the months when deal activity struggled due to the first phase of the pandemic, he said.  

Despite a slow middle of the year brought on by the pandemic, a strong performance from the end of the second half means that the YTD total deal value of EUR 43.5bn is already ahead of the EUR 41.5bn registered in 2019, according to Mergermarket data. This is in range with recent years, with the exception of a bumper 2018, with EUR 95.4bn worth of deals.  

On the other hand, deal volumes are the lowest since 2013, with just 429 announced deals.  

Three mega-deals improved the value figures for the year without moving the dial much on volumes. These were the take-private of Spanish telecoms operator MasMovil, the ongoing merger of two of the country’s banks, CaixaBank [BME:CABK] and Bankia [BME:BKIA]; and the sale of a controlling stake in Portuguese motorways operator Brisa.  

Key macro trends include a global move to renewable energy combined with strong appetite for these assets; banks looking to cut costs and find new income sources as a result of low interest rates, and telecoms players moving to lighten their asset-load, creating opportunities for towers players and infrastructure funds, Davis Polk’s Willisch said.  

PE firms do homework ahead of 2021 

Traditional private equity (PE) firms and industrial companies with dry powder are doing a lot of work to analyse potential targets and market dynamics ahead of 2020 results in order to be able to quickly react and invest during 2021, Citi’s Revuelta said. For this reason, buyside investors and PEs investing in listed companies will probably deploy large amounts of capital in Q2 and Q3 of next year, he said.  

The year ahead could bring further consolidation of the banking and telecoms, media and tech (TMT) sectors, Bank of America’s de Abajo said. Growing sectors, such as renewable energy, could also see consolidation, Citi’s Revuelta said.  

Strong demand for renewable energy assets is likely to continue, which could spill over into adjacent areas, such as technology providers for the sector, de Abajo said. Real estate and infrastructure are likely to be hotspots too, he added.  

Infrastructure funds have huge volumes of dry powder for deals, Ramos said. As well as deals in pure-play infra and energy, some of it will be deployed in “core+,” or businesses with predictable cashflow and long-term contracts, which are a little riskier than core investments, he said. This includes areas such as leasing companies, healthcare, and services, he added.  

Iberia will also see significant activity and potential consolidation in sectors that boomed between 2017 and 2019 but suffered during the pandemic, such as hotels and real estate, Revuelta said. The challenge in areas such as travel, hotels and leisure will be to close the value gap, de Abajo said.  

Meanwhile, Iberia's nascent tech scene is also continuing to grow, Willisch said. International founders are drawn to Barcelona, which is emerging as a tech hub, while the scene in Madrid and other cities, including Lisbon in Portugal, is also on an upswing, he said.  

Food, healthcare, and technology have been the most interesting sectors in 2020 and they will continue to generate deals in 2021, Jose Maria Muñoz, partner of top-ranking private equity (PE) firm MCH, said. 

Even so, 2021 is likely to be a transition year with a lot of uncertainty for financial investors, Muñoz said. There is a lot of liquidity in the market, but prices of good companies continue to rise, he said. The number of buyouts and exits will probably be similar to this year, he added.  

There were fewer buyouts and exits in 2020 than in recent years. There have just been 96 buyouts, with total value of EUR 12.9bn. Both levels were the lowest since 2016, as per Mergermarket data. There were just 46 exits, the lowest level since 2014; while the total value was EUR 16.1bn, a number which beat 2019 but trailed 2018. In the runup to 2021, PEs are exiting several Iberian companies including Logoplaste, Alvinesa, Health Transportation Group and Itasa. 

M&A in Portugal will probably start slowly in 2021, but it should be a reasonable year, with progression as the year goes on, according to Tomás Vaz Pinto, a partner that coordinates the corporate department at law firm Morais LeitãoGalvão Teles, Soares da Silva e Associados Corporate.   

There continues to be a lot of capital from international investors and Portugal can be a good target market in certain sectors, namely energy, food and banking, Vaz Pinto said. Also, the real estate sector, which showed some resilience in 2020, could recover significantly if the global crisis is overcome in the first half of 2021.  

by Rupert Cocke, Iñaki Miguel and Nelson Rodrigues, with analytics by Marie-Laure Keyrou 


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