Market trends in Iberian private equity transactions

This study, an overview of market trends in private equity transactions in Spain and Portugal, analyzes the most significant deals on which Cuatrecasas advised. It analyzes 54 private equity deals signed in 2022 and 2023 (38 in Spain and 16 in Portugal) with transaction values over €10 million in Spain and without limitation in Portugal. 

Spain 2023 Market trends at a glance

• A narrower gap between parties on the valuation of the targets and the stabilization of interest rates indicates a possible reactivation of private equity transactions in 2024.
• Secondary buyouts sharply decreased, and investments gained traction.
• Private equity funds focused on the energy and TMT sectors.
• Taking a majority stake through a roll-over formula increased considerably.
• A moderate increase was seen in transactions run as auctions, focused mainly on deals over €100 million.
• A wave of economic protectionism of strategic interests often requires regulatory authorization for deals with investors from third countries.
• Hell or high water clauses are increasing when regulatory authorization is needed.
• Energy, technology, and infrastructure sectors are of particular concern for the FDI authorities.
• The use of break-up fees rebounded in transactions with deferred closing.
• Conditions subsequent—usually rare—were agreed in 16% of the deals.
• Locked-box mechanism was consolidated again as the most used pricing mechanism.
• In locked-box mechanisms, the use of equity tickers and adding an interest to the leakage amount continued to grow.
• Earn-outs continued to rise, as they help parties overcome their differing expectations about a company’s future performance, crucial in times of uncertainty.
• Joint and several liability was agreed in more than 40% of the deals.
• A 24-month limitation period was the most used for business warranties.
• Excluding clean exits, the most used liability cap for business and tax warranties was again between 20% and 30% of the purchase price.
• The latest trend of granting business and tax warranties through a management warranty deed continued.
• Anti-sandbagging clauses became exceedingly more common than pro-sandbagging clauses.
• W&I insurance continued to be the most used buyer’s remedy but less pronouncedly so than in 2022.
• Madrid was consolidated as the seat of arbitration in all deals where arbitration is the dispute resolution mechanism.

Portugal: 2023 Market trends at a glance

• Transactions valued over €50 million rebounded after a 2022 where small and middle market transactions had gained traction.
• The TMT sector was the most active.
• There was a significant increase in majority deals.
• Most transactions were bilateral negotiations, except deals over €100 million, which were carried out as auctions in all cases.
• Almost all deals included conditions precedent, usually due to the need for merger control clearance.
• Completion accounts and locked-box pricing mechanisms were used almost equally.
• Net debt and working capital were the most widely used financial parameter for the postclosing adjustment.
• Despite the global uncertainty in 2023, the use of earn-outs has decreased.
• Eighteen-month limitation period for the seller’s warranties remained the most used for business warranties.
• Excluding clean exits, the most used liability cap for business warranties was between 20% and 30% of the purchase price.
• Anti-sandbagging clauses gained popularity in 2023, but they were limited to “fairly disclosed” information.
• Third-party guarantors were the most used buyer’s remedy.
• In all deals where arbitration was chosen as the dispute resolution mechanism, Lisbon was selected as the seat of arbitration, while the Commercial Arbitration Centre of the Portuguese Chamber of Commerce and Industry was designated to manage any proceedings.