M&A deals now more complex – Fornesa Abogados

Transactions may now involve payment by instalments and more warranties

Has Barcelona´s mergers & acquisitions market undergone a resurgence? There has been a revival in M&A in the city across many sectors, but particularly in the industrial and technology sectors, according to Tomàs Fornesa, Partner at Fornesa Abogados.
However, in general, it is not massive amounts of money that exchanged hands in such deals, he adds. “Though these M&A deals may involve big companies with many employees, the price paid is low because often the profits are quite small,” Fornesa says.
Many smaller companies – perhaps family businesses or entrepreneurs – are also merging because there is less activity in the domestic market and consumption is low, he adds. “These companies need to internationalise, but they do not have the financial resources to access international markets so they need to join efforts,” he says. This is particularly the case in the public works and construction sector, which used to be strong, but now companies do not have the finance, so ideally they should combine capabilities in order to face projects abroad, Fornesa explains.
Foreign investors are particularly active in the Barcelona market, according to Fornesa. He notes that there is particular interest from Russian and Chinese investors in the real estate sector. Meanwhile, there is interest from US, Chinese and European investors in the industrial and technology sectors. However, Spanish investors are still struggling, Fornesa adds. “Most Spanish companies do not have the financial resources and they are in disinvestment mode,” he says. “Banks are asking them to focus on their core businesses as a condition of refinancing and there is also a time limit for the companies to disinvest so this is why there are some good deals at reasonable prices available in the market.”
Fornesa says M&A deals are becoming more complex, and that it is often the case now that contracts have to be reformed because business does not make the progress that was expected. “It used to be a standard procedure – if you had a target company, you just had to have the finance in place,” he explains. “But now it´s more difficult as the requirements are different – now you don´t need to pay all the amount at the acquisition, perhaps you may pay in instalments, the price become more variable, additional conditions have to be met, and we also have to provide more warranties.”

Revisiting contracts
Fornesa adds that, it used to be the case that, once the transaction was completed, the deal was done and no one had to go back and look at the contract again. “Now, the risk that you will have to go back and revisit the contract is greater,” Fornesa says.
Fornesa says that while there has been a revival in the tourism industry, it is important that Barcelona does not become too reliant on it because competition from other tourist destinations will increase in future. He argues that, while tourism makes a vital contribution to the Catalonian economy, it is important that the city works on fostering growth in other industry sectors. “It´s important to appreciate the tourist industry because it generates employment,” Fornesa says. “But it is not a long term industry as we are just selling sun – once other Mediterranean countries recover and overcome their internal problems, they will be more aggressively trying to attract tourists.” Fornesa believes that, consequently, Catalonia should do more to concentrate on high tech or heavy industry.
What are the problems that worry clients at the moment? One of clients´ concerns at present is political instability in Catalonia, according to Fornesa. “There is a feeling we don´t know which direction we are taking in Catalonia,” he says. “There is also a sense that politicians are focusing on political rather than economic issues – despite recent and discrete improvement, there is a long way to go before internal consumption recovers.”