Private equity funds renewing interest in Portugal

Confidence is high as funds flock to register with the Portuguese stock exchange as they target regulated assets and real estate opportunities

Private equity (PE) funds have shown renewed interest in Portugal in the wake of the troika deal and continue to search for investment opportunities, instilling confidence in the country’s economy, according to Lisbon-based law firms consulted by Iberian Lawyer.
Linklaters corporate finance partner Marcos de Sousa Monteiro says that between 30 and 40 per cent of the M&A deals in Portugal in 2015 involved PE funds. He adds: “Throughout 2015 and into 2016 we saw a continuous and fairly steady market share and volume of work triggered by investments and divestments by PE firms in Portugal.”  Sousa Monteiro says that private equity funds are particularly attracted to investments in regulated assets, as well as real estate opportunities.

Confidence high
Sousa Monteiro adds that PE interest in Portuguese assets is a boost for the country’s economy. “It portrays a high level of confidence in policymakers that has not been affected by the country’s recent elections,” he says. “Some of the deals we have seen are PE funds divesting, but they are being acquired by other PE or infrastructure funds, which also exemplifies the renewed confidence in Portugal.” However, while a continuation of the current levels of PE investment is expected over the coming months, uncertainty regarding the stability of the Portuguese government may prevent an increase in PE deal flow.
The increase in PE investment in Portugal is due to the country’s swollen public-sector debt, according to Duarte Schmidt Lino, the partner who heads PLMJ’s private equity practice. He says that he envisages PE investment in Portugal growing because banks will “no longer fund every need of Portuguese corporates”.

Financial transformation
Schmidt Lino points out that 83 new private equity funds were registered with the Portuguese stock exchange commission (CMVM) in 2015 and consequently, law firms are seeing a growth in demand from national and foreign PE funds. He continues: “PE funds are buying assets not because the Portuguese economy is blossoming, but because its financial structure is in transformation.”
PE is also an important source of financing for companies in emerging markets, according to Schmidt Lino. “This type of highly-qualified investor may be essential for Mozambique as it struggles with a lack of asset management,” he says. Schmidt Lino adds that Angola is facing a “huge crisis and bureaucratic obstacles and the underdeveloped judicial system will probably continue to be the main hurdles to the growth of PE investments”.
Sousa Monteiro says that PE interest in Angola and Mozambique has been waning during the last year. “While many of the key traditional players in the market have continued to look for investment opportunities, and the market has shown some movement, our perception is that there is a slowdown in PE-driven deals in those countries,” he explains. This is largely due to the political situation, as well as the drop in commodity prices, along with greater uncertainty surrounding the exchange rate. That said, Sousa Monteiro adds the caveat that there could be an increase in “distressed-driven” deals in the near future.