Fernando Cabos, Partner at ALBIA, wrote for the Newsletter of El Economista
In the dynamic world of mergers and acquisitions (M&A) in recent times we have seen a growing demand for our services from foreign companies interested in acquiring Spanish companies. This is not an isolated phenomenon: according to the TTR report of October 2024, in the first ten months of this year, 798 acquisitions of companies in Spain have been closed by foreign investors. This figure exceeds the 694 acquisitions recorded in the same period in 2021, a record year for M&A transactions. This statistic indicates that every month around 80 Spanish companies are acquired by foreign investors compared to almost 70 in 2021.
This increase in acquisitions suggests a sustained trend and a growing interest in the Spanish market by international investors. The reasons behind this boom in foreign investment are varied and complex. Factors such as the free movement of capital in Europe, Spain’s remarkable infrastructures, the size of its market together with its cultural and geographical proximity to key markets such as Latin America and North Africa play a crucial role in this dynamic.
It is essential to highlight one of the key factors that attracts foreign companies: the fragmentation of the Spanish business fabric. Indeed, in Spain there is a predominance of SMEs whose size is significantly smaller than the European average. This means that most sectors are dominated by a few large companies and a very high percentage of medium- or small-sized companies.
This atomization of the sectors, together with the transformation that a large part of them are experiencing due to the incorporation of technology and digitalization of the different industries, make up a favorable scenario to carry out sectoral consolidation processes through M&A operations, which is happening with great dynamism, as has been evident in recent years.
Consolidation brings multiple benefits, including a greater capacity to attract and retain talent, an essential factor for the development of any business project. In addition, it allows you to gain market share, expand the customer base, create synergies, access economies of scale and promote the incorporation of technology. In short, consolidation substantially improves the company’s competitive position.
The atomization of the business fabric offers an opportunity for consolidation in most sectors, processes that are being led by national companies but also by new entrants such as foreign companies and financial investors, both local and foreign. These new players are often more willing to face the important challenges that prevail in most sectors. Its entry not only challenges traditional dynamics but also forces companies to innovate and face situations and decisions that have been postponed for a long time, modifying the competitive landscape of the sector.
The advantages of leading consolidation processes are perceived by foreign companies who intend to quickly achieve a solid positioning due to the fragmentation of the market in most sectors in Spain. But there are also many national companies that opt for consolidation and growth either alone or through the financial support of private equity firms, a strategy that has gained relevance as a vehicle to promote the expansion and development of numerous sectors.
For their part, private equity, aware of the valuation multiple differential applicable to larger and smaller companies, are attracted to consolidation processes. They invest in companies that they use as platforms for growth through acquisitions. Once the company reaches the right size, they sell it at a high multiple.
To navigate this environment of opportunities presented by the fragmentation of our business fabric, SMEs have two clear paths: to proactively lead the consolidation processes, alone or hand in hand with financial investors, or to allow new entrants, whether financial or from other countries, to capitalise on these opportunities. This has been happening for years: foreign multinationals have a prominent presence among the largest players in the different sectors. Currently, we are witnessing positions being taken in mid-sized companies, thus transforming our business landscape.