Although Spanish sponsor-backed M&A has been hit hard by rising debt prices, dealmakers are optimistic that the energy transition will provide a powerful stimulus to activity, according to panelists at Mergermarket’s Deal Leaders' Summit Iberia 2023 in Madrid last week. 

“The energy transition is the largest investment opportunities in decades,” according to Juan Jaquete, investment director at Plenium Partners, a private equity (PE) infrastructure fund manager with nearly 2.5Bn AUM under management.

“We have to invest massively to electrify the economy, including electric vehicle charging points, utility scale storage, the electrification of heating and reinforcing the grid,” Jaquete said.  

The opportunity is so large that investors are allocating more capital in Spain and Portugal, Jaquete said, adding that this makes PEs less incentivised to use the region as a base to explore opportunities in Latin America.  

Sponsor-backed M&A over the year to date (YTD) is softer than in recent years, according to Mergermarket data. Total buyout volume so far is EUR 2.8bn, spread over 23 buyouts, while total exit volume is EUR 2.6bn, spread over 11 exits. Buyout volumes are the lowest in the past five years and exit volumes are the lowest since 2020.

Dealmakers see high-quality assets, PEs buying and investing in companies carved out of larger corporates, and public-to-private (P2P) deals reactivating the market, as reported. Cleantech is also coming into focus in the region.  

Since the event last week, a P2P transaction involving a Spanish energy company has been announced: Antin Infrastructure Partners’ proposal to delist Opdenergy in a friendly deal which values the company’s equity at EUR 866m.  

There is a read-across to the company’s peers, including Grenergy [BME:GRE] and Solaria [BME:SLR], according to Mergermarket’s Morning Flash EUR column.  

In the short term, biomethane and biogas are tangible opportunities in Iberia, according to Pablo Riestra, senior vice president of Macquarie Capital.  

Prio, a Portugal-based energy group, is in talks with two large PEs to co-invest in a biofuels project valued at EUR 600m, as reported by Mergermarket in May.  

However, Spain is lagging behind some European countries when it comes to defining a framework to develop new renewables, Riestra said. This is particularly true when it comes to permitting, he added. 

Iberia has given licences for about 60 GW in projects, including around 45 to 50 GW for solar projects, according to Raquel Perez, global head of investments and M&A at EDPR [ELI:EDPR], which has Singapore-based sovereign wealth fund GIC in its capital.  

Around 40 GWs of capacity need to obtain construction permits before September, Perez said, adding that there are bottlenecks in the supply chain, particularly for transformers. “The market expected this regulatory deadline to be extended however the anticipated general election is adding uncertainty to that possibility.”  

The energy transition will also create opportunities for dealmaking in adjacent areas, according to Jorge Gil, global head of Santander Corporate & Investment Banking’s (CIB) infrastructure and industry group.   

“Ten years ago, managing a car park was basically counting cars,” Gil said. “Today, sponsor-backed operators are looking at opportunities around EV charging, car sharing and last-mile delivery,” he said, adding that there will also be opportunities in waste and water.  

Optimistic mood 

Overall, the PE pipeline looks healthy and the mood is optimistic, according to Victoria Lebed, head of transactional risk for Iberia at WTW. 

“Seller-initiated enquiries for transactional risk solutions continue to rise; the trend of sellers preparing to divest through a clean exit continues,” Lebed said, adding that deals are more flexible and involve longer timelines. The third and fourth quarters should be busy.  

The sponsor-backed portfolio companies that are most ripe for exit include Altafit Grupo de Gestion, which has a score of 89, according to Mergermarket's Likely to Exit (LTE) predictive algorithm.* Altafit’s PE backer, MCH, hired Jefferies to sell the fitness centres operator, according to a press report from February.  

Continuation funds are beginning to make an appearance in Spain, according to Alfonso Moreno, managing director and head of M&A for Spain & Portugal at Santander CIB. “I think that is more reality in the US, but we're seeing it in Europe definitely It's part of our discussions in Spain, which is always a complex discussion.” 

The difficulty financing deals in the current interest-rate environment has brought private debt into focus. Around 80% of the Spanish debt market is provided by banks, compared to less than 10% for the US, according to Leticia Ruenes, managing director and head of Spain at Pemberton Asset Management.  

Private debt is complementary to bank lending in Iberia, according to Daniel Herrero, founding partner at Oquendo Capital. However, only the best deals will go through in the present environment, he added.  

Although the move to higher interest rates over the last year has been too fast, this is a relatively normal period of the economic cycle, said Borja Oyarzábal, president and founding partner at Tresmares Capital. The flexibility of private debt compensates for the extra cost, said Alonso Torre de Silva, managing director in Madrid for Ares Asset Management.  

Hydrogen 

Iberia has been positioning itself as a hydrogen hub, as reported. However, dealmakers warned that any benefits will be slow to emerge.  

“Hydrogen is going to become a very important part of the energy pool, although it is still not clear when it will be developed at scale,” Macquarie Capital’s Riestra said. His firm has a “medium-term view” on the tech, he added.  

“The numbers for hydrogen don't add up yet,” Plenium’s Jaquete said. Meanwhile, EDPR’s Perez said that hydrogen will take longer than expected due to challengers around the costs, transport and offtake.  

One of the most visible players in the sector is Calvera Hydrogen of Zaragoza, which is seeking an anchor investor ahead of a planned IPO, as reported.  

by Rupert Cocke and Nelson Rodrigues, with analytics by Santosh Shetty 

*Based on a number of key industry, holding behaviour, and dealflow criteria, Mergermarket's next-generation platform assigns a Likely to Exit (LTE) score to each exit opportunity, with a higher score corresponding to a higher likelihood for an imminent transaction. 

[Editor's Note: The second paragraph has been amended post-publication to clarify that Plenium Partners is a private equity (PE) infrastructure fund manager with nearly 2.5bn AUM under management.]