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54% of companies will grow through mergers and acquisitions to overcome an uncertain year

Date: April 24, 2024 Time: 09:29:35

In a context of inflation, containment of household consumption, a sharp increase in financing costs -which will continue to rise to the extent that the European Central Bank plans to continue raising interest rates-, and credit restriction for this same reason and due to financial turmoil, 54% of Spanish companies plan to grow via mergers and acquisitions to overcome the effects of uncertainty. This is the main conclusion of the report Perspectivas España 2023, prepared by KPMG in collaboration with CEOE, which includes the conclusions of a survey of more than 1,100 Spanish managers who have responded to the questionnaire on M&A.

The macroeconomic aspects that have marked the international context as a result of the war in Ukraine, caused a slowdown in this market last year. Investors are looking at 2023 with caution, but everything indicates that there will be a reactivation of operations during the middle of the year, since Spanish managers have among their plans to resort to this mechanism as a way to achieve greater growth and second diversification. Among the challenges that entrepreneurs perceive in the shortest term is the creation of valuation structures that bring positions between sellers and buyers closer, operations in which financing is not the axis of the agreement, private equities (capital investment) focused on invest and manage their portfolio, and companies that only divest in assets that are not strategic to obtain, in this way, the necessary liquidity.

Faced with these challenges, managers also see opportunities, such as the fact that “some good assets will acquire attractive prices, thanks to the correction in valuations,” the report says. Throughout the past year and against all expectations, the activity of mergers and acquisitions continued despite the uncertainty. Thus, and although there was a number of large agreements, the same did not happen in the ‘middle market’. In principle, this trend will continue in the coming months, in which companies will assess the possibility of making acquisitions and have on their radar the search for good opportunities, for the most part, to grow in new markets or enter new lines of business. business

25%, in fact, believe that there will be good opportunities in this regard. In general, everything points to a quieter first half of the year, with greater movement in the second half, which will be the moment when the market will be more aware of the impact of the rate hike. In a scenario like the current one, operations such as joint ventures (commercial or strategic alliance) become relevant as a way to grow inorganically, while reducing risks and facilitating entry into new business segments, sharing synergies and being easier to obtain financing, an essential aspect, given that after years with very low rates, companies have to go to much stricter and more expensive markets in order to obtain financing.

Wait to see the impact of the rate hike

“Some players are going to let time pass a little to be able to see what evolution some variables have, such as rate hikes. Despite this, the funds will continue to be very operational, supporting their investees to make them grow”, points out Jaime Muñoz, partner responsible for KPMG Transaction Services in Spain. From his point of view, it is a good time for companies to focus on their core competencies and put aside side businesses that they will put up for sale. “In the coming months we will see sales of production units of large companies,” says Muñoz.

This sale of non-strategic assets (which 62% of executives expect to carry out this year) will help them find liquidity with which to finance their growth without having to resort to leveraging the company. However, on many occasions, the Sellers will have to decide between reducing their returns or delaying their sales processes. Companies that plan to carry out divestments during 2023 take into account both premises, according to the document. Secondarily, there are other options such as the appearance of an investment window, capitalizing valuations, launching a business succession or the regulatory requirements themselves. Lastly, and also in line with the objective of obtaining liquidity, some managers point to reasons such as reducing the accumulated debt after Covid-19, obtaining capital to grow or acting on the deleveraging of the company itself.

In any case, the difficulty in making forecasts will make investors move very cautiously. The liquidity that is in the market at present will move in search of good assets at good prices. The financing of operations has become more expensive, however, it is still active and, in fact, in the report they verify that the banks maintain their appetite for supporting M&A, despite the fact that there has been a reduction in large agreements that involve a high volume debt A large number of companies are forced to restructure their debt after the pandemic (ICO loans are some examples of this).

Despite the fact that renegotiation with the main bank is the option that senior managers are considering the most, given that one stops against maturities. This option is followed by resorting to a syndicated loan (20% of those surveyed would opt for it), the issuance of bonds (15%) or debt funds (10% of businessmen), although all of them are far from much of the first. Other options raised are carrying out a capital increase, the sale of a stake or entering a venture capital fund, among others.

* This website provides news content gathered from various internet sources. It is crucial to understand that we are not responsible for the accuracy, completeness, or reliability of the information presented Read More

Puck Henry
Puck Henry
Puck Henry is an editor for ePrimefeed covering all types of news.

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