Beyond Brexit: How has the Spanish Private Equity market responded to the Catalan independence referendum?
Since the UK triggered Article 50 last March, there has been extensive coverage of what this could mean for the Private Equity world. However, Brexit was not the only political shock to hit Europe in 2017.
The Catalan struggle for the right of self-determination from Spain was one of the most discussed issues on the continent last year. Onefourzero’s social media participation analysis indicates the scale of the event in public consciousness – on the day the Referendum was held, 1st of October 2017, more than 2.5m related posts were recorded, one million of them in Catalonia alone.
However, despite a high profile and volatile political situation, the Spanish Private Equity market has proved resilient and looks likely to remain strong in 2018.
The unfolding events in Barcelona throughout autumn 2017 prompted dire warnings over the effect the instability would have on Spanish and international markets.
International press warned that Catalonia’s largest banks were preparing to leave the region, and Private Equity firms such as Ibex 35-listed Caixa Bank and Sabadell moved their headquarters to elsewhere in Spain.
This unrest had the potential to be particularly bad news for Spanish Private Equity firms, which are heavily reliant on international interest. Madrid-based firm Portobello Capital relies on international investors for up to 85% of their fundraising.
Autumn 2017, therefore, saw a small slowdown in deal activity, as investors postponed decisions while waiting on the outcome of the referendum.
Private Equity market remains strong:
However, despite putting off some immediate decisions, it seems investors have largely remained undeterred by the political upheaval.
Preqin data shows that 15 deals were completed in Spain from September – December 2017, up from 13 in the same period in 2016.
This resilience may be due to the fact that the Catalan referendum took place against a backdrop of recent growth for Spanish Private Equity. Interest from international investors in the Spanish market has been steadily growing since 2014. New funds raised by Private Equity and Venture Capital firms in Spain in 2016 totalled €2.3 billion, a 48.5% increase from 2015.
Similarly, 2017 saw Spanish the total deal value surge to its highest level since the pre-crisis period. The region saw healthy buyout activity in the first 11 months of 2017, with aggregate value reaching €16.43bn.
As one Barcelona based- GP put it: “Spain is a country with an economy that is growing and the private equity sector is relatively young, so it has a long way ahead.”
This continued interest from investors is no doubt buoyed by confidence in the Spanish economy as a whole, which has been one of the strongest performers in the euro area since the recession.
The fact that full self-determination for Catalonia now looks like an increasingly unlikely prospect has no doubt further reassured investors.
Interest in Spanish firms looks set to continue into 2018 – Sweden-based EQT has just this month provided funding to the Catalonian PE firm ABAC.
As we found with the aftermath of the Brexit referendum, Private Equity markets have proved to be more resilient to political upheaval than initially expected.
It seems investors are continuing within an unstable geopolitical environment, with upheaval and uncertainty becoming the “new normal.” When looking internationally, investors should take into account the political atmosphere within the context of the longer-term trends in the market, as well as the strength of the portfolio companies, rather than reacting instinctively to high profile political events.
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