M&A set to increase in late 2015 with ‘mega-deals’ expected

Investors in Spain are targeting a broad range of sectors including consumer, finance, energy, retail and real estate

International law firms are benefiting from an increase in premium, cross-border M&A work involving Spanish conglomerates, while domestic firms are picking up a healthy flow of smaller deals, according to new data.
Uría Menéndez was the only Spanish practice to feature in Mergermarket’s ranking of the top 10 Iberian legal advisers by M&A value for the period 1 January to 14 July, 2015 – the firm was in eighth place with deals worth €5.7 billion. Top spot went to Linklaters with a portfolio valued at €22.2 billion with Freshfields Bruckhaus Deringer (€18.4 billion) second and Herbert Smith Freehills (€16.4 billion) third. Other international firms to feature included Baker & McKenzie, White & Case, Latham & Watkins and Allen & Overy.
Alejandro Ortiz, a corporate partner at Linklaters, highlights global deals as a driving force. “The high-value deals by their nature tend to be cross-border, which is one reason why international firms perform well,” he says. “They have offices around the world so are able to handle such large matters.”
However, Uría Menéndez partner Juan Martín Perrotto, says: “The value figures have been slightly distorted because the biggest deals included the likes of Telefónica (which sold 02 to Hutchison Whampoa for €14 billion) and Banco de Sabadell (which bought TSB for €2.35 billion). These skew the overall value of the market but are also effectively cross-border deals involving Spanish companies abroad.”
 Spanish firms, instead, perform much stronger in the volume tables, suggesting that a regular flow of small and mid-sized deals is keeping practices busy. Cuatrecasas, Gonçalves Pereira had the biggest deal portfolio, with 26 transactions. Uría was second (21 deals), Garrigues fourth (15 deals) and Gómez-Acebo & Pombo Abogados seventh (nine deals). Linklaters was third (17 deals), while Deloitte Legal, Allen & Overy, DLA Piper, PwC Legal and Baker & McKenzie also featured.
Álvaro Sainz, head of corporate for EMEA at Herbert Smith Freehills, says the fact that international firms are doing well in the value tables and that Spanish firms are doing well by volume is basically down to their different business models. “International firms generally have fewer lawyers and they therefore focus on higher value but a smaller number of transactions, while with a much larger number of lawyers, Spanish firms can handle a high volume of smaller value transactions,” he adds.
Sainz remains optimistic, pointing out that the number of transactions might have decreased but the value of deals has been relatively steady, suggesting that the market is recovering with the return of higher value transactions. “The market trend has very clearly changed,” he says. “Confidence has returned to the economy and competitiveness has returned due to the measures that Spain has taken, resulting in the recovery of asset value.” Sainz cites a number of opportunist transactions last year, specifically transactions targeting the acquisition of assets at bargain prices, taking advantage of companies’ need for liquidity.

Assets’ true value
This trend has started to shift in 2015. The economic upturn and, especially, improvements in the financial markets has meant companies have not had to sell off their assets at any price. As a result, transaction prices are beginning to approach the assets’ true value.
Ortiz expects that, despite some worries about the Spanish elections and the situation in Greece, the market will grow after the summer. “Many funds and other investors are coming into Spain and are targeting a broad range of sectors rather than mainly distressed assets as was the case during the crisis,” he explains. “There is interest in assets across consumer, finance, energy, retail and even real estate sectors, both for large and small deals.” Alberto Alonso Ureba, head of Baker & McKenzie´s corporate law and markets practice, adds: “The accelerated process of divestment by Spanish companies due to the economic crisis has given rise to M&A deals of all sizes.”
Perrotto predicts more mega-deals, especially big strategic deals, and a return to pre-crisis levels of activity. “Infrastructure and energy are areas in which investors are looking at prime assets,” he adds. “Indeed, a decade ago infrastructure funds had about $2 billion of assets – now they hold around $300 billion, they are now major players.”