The second half of 2023 looks set to be very active in the M&A sector. According to the report “Perspectivas M&A en España 2023” conducted by KPMG in collaboration with the employers’ association CEOE, 54% of executives expect to boost the growth of their companies through M&A transactions in the coming months.
After surveying 1,100 Spanish entrepreneurs, the study concludes that one in four executives expect to accelerate the growth of their business with an acquisition or alliance in 2023. This is a significant increase from 2022, when only 11% did so.
In recent times we are already seeing large deals by international private equity funds. Some outstanding examples are the recent purchase of Amara NZero by the British fund Cinven, valued at 700 million euros, or the acquisition of Windar Renovables by Bridgepoint for 650 million euros. In the coming months, it is expected that many large companies will launch secondary businesses on the market, choosing to focus on their core business and resorting to this type of divestment to obtain liquidity.
Objectives: diversify, generate synergies, creat new lines of business…
In the current environment, joint ventures, alliances and acquisitions are seen by many companies as a good way to cope with uncertainties. The reasons for undertaking M&A according to business people are mainly the following:
- Find a good market opportunity (50%).
- Achieving geographical diversification (36%). In these cases, the preferred formula is the joint venture.
- Enter new lines of business (35%).
- Consolidate market share (34%).
- Generate cost synergies (31%).
- Increase customer base (29%).
- Overcome the limited options currently offered by organic growth (26%).
In short, alliances or joint ventures reduce risks and facilitate entry into new businesses, sharing synergies and also facilitating access to debt.
What are the main difficulties in undertaking M&A transactions
According to the entrepreneurs surveyed, these are the main difficulties they face when undertaking an M&A transaction:
- Economic uncertainty (72%).
- Finding good investment opportunities (41%).
- High asset prices (36%).
- Complexity of the transaction (30%).
- Difficulty in obtaining financing (27%).
Securing funding, one of the main challenges
This last challenge, that of financing, deserves a special comment. After years of very low rates, it is now much more expensive to finance. For this reason, transactions where the strategic side outweighs the financial side are now much more likely to be completed successfully. However, in the second half of the year, divestments to raise liquidity are expected to increase cash and reduce debt.
According to the KPMG and CEOE study, the main sources of financing to support mergers and acquisitions are domestic banking (47%), private equity (17%), foreign banking (16%), capital markets (12%) and alternative sources of financing (8%).
As we can see, the responses recorded suggest that banks in Spain are still willing to finance transactions. However, it is worth highlighting the growing role played by private equity funds, which now account for almost 25% of M&A investment in Spain. We are seeing this in large deals such as Pronovias and Abengoa, and the forecast is for them to play an increasingly important role in the market.