Private Equity Spain
Spain Private Equity
Spain Housing Crisis Halts Private Equity Firms
Spain has been one of Europe’s largest leveraged buyout hubs in recent years but a crumbling economy, brought on by the housing market meltdown and a severe decline in consumption, has private equity groups looking elsewhere. Several private equity firms invested in construction and building supply companies which was a highly profitable sector until the housing meltdown, this year there have been no private equity deals in Spain’s construction industry.
In both 2007 and 2008, Spain ranked as the 5th most
active private equity market in Europe in terms of deals. Now, Spain is ranked 11th and it is uncertain whether it will fall further as other European nations begin to recover and Spain’s economy still struggles. Private equity investors have reason to distrust Spain’s buyout market as even deals made in the last few years are fighting to stay afloat to rough economic waters.
“The Spanish economy is shrinking fast, and it will become poorer compared to other countries,” said Jaime Hernandez Soto, co-founder and partner of local firm MCH Private Equity and the chairman of Spain’s private-equity association Ascri. “You have to be careful with what you’re buying right now, because so many companies will have to downsize to reflect a smaller economy.”
Mr. Hernandez Soto said he expects deal activity to pick up slightly in the second half of the year and into 2010, though it isn’t likely to return to recent years’ levels any time soon.
The housing market’s collapse has hit some private equity portfolio companies focused in construction while others escaped before the crash such as Nmas1′s machinery rental firm General de Alquiler de Maquinaria SA, which Nmas1 bought for almost $40 million in 2004. The Spanish buyout group intended to use the purchase of General to acquire other companies in the industry and grab a share of the €1.9 billion market value, and it did so quite successfully. Nmas1 used GAM to buy up three small firms and complete 5 more buyouts of larger companies becoming a giant in the industry.
In 2006, Nmas1 generated €189.9 million in an initial public offering of GAM making a massive return on its initial investment in the company. Nmas1 was able to avoid the housing collapse while other private equity firms piled on trying to duplicate such success stories. In 2006 private equity firms invested $437 million in the Spanish construction sector but then the housing bubble burst and investment fell to just $119 million in 2007 and $22 million last year.
While Nmas1 was able to avoid the housing crisis others were not so lucky. In 2006, Advent International Corporation purchased a heavy machinery rental firm, Hune, at the peak of the bubble. Like GAM, Hune completed several acquisitions to increase its size in the industry but left Advent with debt estimated to be between €400 million and €500 million. That debt became more concerning as demand for Hune’s machinery dropped, reportedly leading Hune to consider selling its majority stake in Hune. 3i Group PLC had a deal go sour in a similar way forcing it to sell its stake in a concrete business after demand plummeted. Now, no firms are willing to step back into the construction sector.
Buyout firms didn’t invest directly into home building in Spain, but they were big backers of the construction-services firms and manufacturers of such products as tiles and stone, which are highly sensitive to a housing bust.
“Some funds made their investments in the construction sector a bit late,” Mr. Hernandez Soto said. “Now, they’re suffering.” Source
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