Portuguese deals slowing, but banking and real estate M&A shows promise

Though deals activity in Portugal declined during the last 12 months, lawyers expect major banks to divest assets in 2017, while real estate and energy transactions should increase

Though there was an increase in small and medium-sized M&A deals in Portugal in 2016, deal flow and transactional values generally declined in the last year, lawyers say. Among the key drivers of deals activity in the country in 2016 were real estate transactions as well as the trend for banks to dispose of non-core businesses as they seek to improve the quality of their assets as well as their capital ratios.
The real estate sector led the M&A trend, with private equity firms active in the market as they took advantage of the abundance of assets on sale, according to Diogo Leónidas Rocha, partner at Garrigues in Lisbon. “We are confident in the continuing improvement of M&A activity, in line with what is happening in Spain,” he says. “The pressure on large banks to sell participations in non-core businesses will certainly continue this coming year.”
Overall, there was a slowdown in Portuguese deal activity in 2016 compared to the previous year. This was mainly due to political uncertainty and turmoil in the banking sector, specifically the resolution and sale of Banif, the €5 billion recapitalisation of Caixa Geral de Depositos (CGD) and the problematic attempts to sell Novo Banco. Major Portuguese M&A transactions in 2016 included Barclays’ sale of its Portuguese Barclaycard business to WiZink Bank – Freshfields Bruckhaus Deringer advised Barclays, while Clifford Chance acted for WiZink. Meanwhile, Ardian acquired Ascendi PT II for €600 million – MLGTS advised Ascendi, while Cuatrecasas, Gonçalves Pereira and Linklaters acted for Ardian.
In addition to the real estate and finance sectors, there was also significant deal activity in the Portuguese energy, infrastructure and tourism industries. José Diogo Horta Osório, partner at Cuatrecasas, Gonçalves Pereira in Lisbon highlights infrastructure funds and private equity funds as being among the keenest investors. He adds that he expects there to be an increase in infrastructure, energy and real estate M&A in the coming year. “This is due to the availability of financing from banks, the relative political stability and the growth of the Portuguese economy, against all the odds,” he says. In addition, Horta Osório highlights the attempted buyout of Novo Banco by Caixa Bank, for whom Cuatrecasas is acting as legal adviser, as one of the biggest prospective deals.
Signs of resilience
Marcos de Sousa Monteiro, partner at Linklaters in Lisbon, says that despite the slowdown in 2016, the Portuguese market showed some “signs of resilience”. He attributed the decline in deal activity, in part, to external factors such as Brexit and the US presidential election, which triggered concern and uncertainty regarding market volatility and the sustainability of existing investment strategies. In Portugal, meanwhile, the change of government towards the end of 2015 fuelled concerns regarding potential regulatory and political instability. “Some investors took a more cautious approach with regard to investment opportunities in Portugal, particularly in the first half of the year, which impacted on the total of inbound investments,” De Sousa Monteiro says. “Notwithstanding a general slowdown in terms of overall deal flow and size, we continued to enjoy our fair share of deals and market share over the past year, and we actually saw a significant increase in real estate M&A and other real estate-driven transactions.”
De Sousa Monteiro adds that, in 2016, large European trade buyers – that is, industry or sector-focused enterprises that are not generally multi-jurisdictional in outlook – returned as they sought to invest in Portugal to expand their global footprint. However, De Sousa Monteiro says the outlook for 2017 remains uncertain. “Given the current international turmoil, particularly with regard to global politics, there is some uncertainty as to what 2017 may bring with regard to investment opportunities and deal flow, and political events may impact and even shape the world economy.”