TTR Deal Maker Q&A with Aitor Cayero
Aitor Cayero, CFA
Aitor Cayero , CFA, interviewed by TTR (Transactional Track Record) https://www.ttrecord.com/es/ about M&A activity in Spain during the year https://blog.ttrecord.com/dealmaker-qa-aitor-cayero-albiacapital/.
As an expert in Corporate Finance/M&A, how would you characterize M&A activity in Spain Year-to-date?
Despite an interannual slow-down in the M&A market in Q1 2019, presumably produced by some uncertainty looming in the overall macro landscape, our perception of the mid-market M&A is that activity is healthy and will continue to be so for the coming months. Specific circumstances for M&A activity are favorable: Spanish economic backdrop is robust, interest rates remain low and valuation spread between demand and supply in the M&A Mid Market is narrow. What is obvious, though, is that economy has been expanding for several quarters since the last crisis, and M&A activity has accompanied, so it does seem advisable for anyone thinking of entering the M&A market that he or she should do so while circumstances continue to be favorable.
IMAP Albia Capital advises on many sell-side mandates. Are these transactions typically structured as competitive processes? What level of appetite are you seeing in these targets?
In most cases, yes, processes are competitive. We have been involved in cases in which conversations have been exclusive from the beginning, but usually only when deal structure and terms are broadly agreed upon from the get-go and a framework of sufficient trust is established between buyer and seller, the latter a factor in which we as advisers frequently intervene.
Regarding appetite, demand really picks up when deals are above the €20 EV area. That’s where private equity usually comes into the picture, and, we all know what the dry powder status is in Spain and internationally; just check the last Bain and Co. Global Private Equity Report. So, sure, sell-sides that are sufficiently sizable, offering an attractive project and niche products, and with management teams willing to lead the project and reinvest, are hot products right now.
Which funding resources are preferred by potential buyers seeking to acquire at present?
To be truthful, most buyers are still not that sophisticated in terms of funding sources: equity and basic amortizing bank loans basically cover most funding resources in Spain. Larger deals in which we have intervened have been structured using non-bank loans, such as mezzanine, unitranche, bullet structures, etc., currently being offered by debt funds, but this isn´t the typical Mid Market M&A deal in Spain today. We at IMAP Albia think the Spanish market will eventually end up resembling the US and UK markets, which are markets in which M&A transactions are mainly non-bank loan funded. Of course, we offer our buy-side clients the possibility of using more complex funding structures, and value creation that these structures add for their shareholders; some flatly dismiss the possibility, and others are open to at least exploring the possibility. It´s part of our role as advisers to let our clients know how to financially improve transaction structures.
To date, IMAP Albia Capital has advised on many industrial acquisitions. Which segments of the industrial sector are currently most attractive to investors?
I don´t see specific industrial sectors as being attractive as a whole. Some companies are in apparently unattractive industrial sectors, but are just in the right place within their value chain, with a niche and resilient product, and others are in trendy industrial sectors but don´t have the right elements in place to even be sustainable in the long term. Companies with competent management teams, a clear strategy and a powerful product offering will in most cases be successful, whether it´s one industry or the other.
However, I wouldn´t want to avoid directly answering your question, so I will say, just to name a few, that electronics, animal nutrition, industrial material additives, and non-combustion engine car part suppliers are four industries that are attracting attention.
As a local player, what are your thoughts on the current M&A market in Basque Country?
It is true that we originally started our activity in the Basque Country 15 years ago, and it is truly one of our main geographical markets. However, since joining our previous international organization 7 years ago, and especially since joining IMAP 3 years ago, our geographical reach in Spain is all over the country. IMAP is present in 39 countries with over 500 professional M&A advisers on our team. We currently have offices in Bilbao, Madrid and Barcelona, and most on-going mandates are nationwide.
Regarding the Basque Country, precisely on this topic we published an article in February of 2018, in which we indicated that Basque company’s offer skilled and productive workforces, high quality niche products, strong supplier networks, proximity of public administration, etc., which are all factors that make it the leading industrial hub in Spain. However, the one element Basque companies are improving, and need to continue improving, is size. They need to continue investing in other geographies, not only to become more attractive more financial and / or industrial investors, but also to guarantee long-term sustainability.