Inflation, rising interest rates and their effect on deal financing are leaving their mark on the M&A sector. And yet, by 2023, expert forecasts suggest that private equity investments in Spanish companies will once again set a new record high.

Private equity funds have an essential role to play in the growth of companies and in the concentration of certain sectors. Competition among them is fierce, and despite the caution prevailing in the market, many have their sights set on the most defensive and counter-cyclical sectors. Real estate, healthcare, food, software and e-commerce are some of the sectors currently attracting most interest.

How to value companies in 2023

Before embarking on a merger or acquisition in 2023, it will be more important than ever to analyse the target company over the long term. Current trading analysis, which is unable to reflect the fundamentals of companies in a volatile scenario, is no longer useful.

Earn-out clauses, a company valuation mechanism in which the transaction price has a variable part that depends on the performance of the asset purchased over a specific period of time, will become increasingly common. In other words, the purchase price combines a fixed part that is paid in cash at the time of signing and a variable part that is set according to objective criteria that vary over time. In recent times, large groups such as Telefónica, ACS and Ferrovial have already closed M&A operations with earn-out clauses.

Sustainability aspects are increasingly present in the valuations made by private equity funds. ESG criteria, which stand for Environmental, Social and Governance, allow for a more qualitative assessment and are increasingly appreciated. Because it is becoming increasingly attractive to invest in projects that can be classified as sustainable.

The European Commission has developed a taxonomy that classifies economic activities according to their degree of environmental sustainability. The aim is to redirect capital flows towards sustainable investments, involving the financial sector in achieving the objectives of decarbonising the European economy and meeting the United Nations Sustainable Development Goals. Although it is still a challenge to measure ESG criteria and reflect them in valuation today, this is a trend that will be on the rise by 2023.

The rise of “distressed” operations 

Political and economic uncertainty will lead to many “distressed” transactions aimed at restructuring companies. On the one hand, there are investors in the market with an appetite for risk, such as the divisions of Special Opportunities. On the other hand, there are plenty of opportunities for interesting companies that are experiencing financial difficulties due to the global environment of the last few years. These are companies that need to gain liquidity and are now available at lower prices or will offer the opportunity to enter their capital through restructuring. 


In short, we expect that private equity or private capital will continue to be very relevant in the development and growth of Spanish companies in the year that is about to begin. There is still plenty of liquidity and opportunities abound in the market. Many companies are in a situation of lack of generational replacement or need financing to undertake their growth plans. 


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