Q&A with Aitor Cayero, Partner at IMAP Albia Capital for TTR

TTR: In 1Q21, M&A volume registered a decrease compared to 1Q20. How do you interpret this trend? What can we expect in terms of transaction volume in 2021?

 IMAP Albia: 1Q20 was the last pre-pandemic quarter, and we were in a fully-fledged M&A market for most of that quarter. So it´s an uneven comparison because market dynamics have changed dramatically between both quarters.  All in all, both 2020 and 2021 are years heavily affected by the pandemic so I would expect 2021 not to be substantially different to 2020 in terms of transaction volume.

It´s worth clarifying that unlike the previous global crisis, where the M&A had a steep slow-down, this time around there is still substantial activity; the difference is that while certain sector have been hit hard (e.g. aeronautics, automotive, travel), others have thrived (e.g. chemical, nutrition, pet care, health, IT, logistics).

TTR: IMAP Albia Capital was one of the leading advisors on industrial production deals in Spain in the last years. What factors will drive consolidation of this sector in the medium and long term?

 IMAP Albia: Internationalization of production sites had been one of the key drivers up until the pandemic. Companies massively sought to be more cost efficient by having plants outside of Spain, which made total sense, as it does in the current context. However, production shortages due to dependency of either raw material or production capacity on distant countries has made industrial production companies think about their supply chain, and consequently we think trends towards the acquisition of local companies to expand local capacity or backwards vertical integration could be a key factor.

Also, it is well known that Spain’s industrial production landscape is made up of primarily of small and medium sized companies. Many of these companies were already having financial problems pre-crisis. The pandemic has come to reveal and intensify their difficulties. Either these small and medium companies have very, very strong entry barriers in their technology, product or clients, or they will eventually have to necessarily need to integrate into larger organizations or find robust financial backing.

TTR: Regarding corporate restructuring, what was the situation in 2020 and what are the prospects for 2021 in Spain?

 IMAP Albia: Precisely we were convinced that the factors were aligned for a strong corporate restructuring market. We even made a relevant effort from April to June to remind the market of our restructuring service capacities, as we have worked intensely on these type of projects in the past and hold significant credentials.

However, government backed financial support has basically overridden this market. In some cases, companies have sought this support to navigate short term difficulties. Others, on the other hand, were already financial week pre-crisis, as we mentioned previously, and consequently the government support is only postponing many restructuring cases that will eventually surface. But this won´t be the case until probably 2022 or 2023, when companies will finally be required to repay a higher debt load leveraged on pre-crisis business dynamics that were already faltering.

TTR: What would be another three sectors that could offer the greatest opportunities in Spain for international investors in 2021 and why?

IMAP Albia: There is a huge opportunity in the IT and digitalization sectors, in particular in the area of making serious progress in making work from home a truly natural process, and not a clumsy exercise imposed by a pandemic or whatever reason. There is loads of progress to be made in the area of being able to work from home in a secure environment, through a fully and professionally virtualized desktop.

Pet Care is booming in all over the value chain: from feed to health, from production through wholesale to retail channels. Structurally it looks like an industry that will continue growing as more and more people appreciate the company of domestic pets.

Finally, several relevant industrial and financial actors are moving into the circular economy industry. The amount of waste generated and what to do with that waste, whether it is domestic or industrial, is a structural concern for society in general. Public support and private initiatives should align in this area and there will surely be M&A processes involved.

TTR: What will be the main challenges for IMAP Albia Capital in its M&A advisory work in Spain in 2021?

IMAP Albia: We think the challenges we will face will be mainly of exogenous nature whether in form of strategic M&A decisions that are postponed by market uncertainty, or restructuring needs that are dulled by government backed financial support.

We expect heavy origination to come towards the end of 2021, which will hopefully coincide with the end of pandemic and company executives will finally green light projects that were postponed by market uncertainty. But timing of full recovery from the pandemic is surely a challenge.

Despite this, we currently hold a very exciting deal portfolio, both through domestic origination and also opportunities coming in from our international organization – IMAP – and we are looking forward and optimistic about the coming months of 2021.


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