Friday, June 9, 2023

Venture capital puts the brakes on Spain and ends its golden age

Iñaki Cobo, head of KKR in Spain; Jorge Quemada, the head of Iberia, at Conven; Javier de Jamie, ‘Managing Partner’ of CVC in Spain.

The pace of venture capital varies. After an era in which Spain was ruled by large amounts of money in operation, the sector has experienced a complete drought in recent months which is expected to continue during the first months of next year.

On February 24, in the early hours of the war in Ukraine, he marked the end of an era in venture capital. The funds were massive in recent years. He was the master of the economy, as a combination of nearly free financing and absolute flatness in returns on rest of the assets supported the one-by-one purchase of several large Spanish companies. They didn’t know it at the time, but the first missile in Kyiv marked the end of that golden decade.

The declaration of war led to an increase in raw materials and an unprecedented increase in inflation in Europe. This prompted the European Central Bank (ECB) to end the long era of zero rates and suddenly raise the price of money to the 2.5% it set at a meeting last Thursday.

The mergers and acquisitions market has seen a spate of cancellation procedures in recent months. Among others, they belong to the education firm Northeus, the mattress maker Flex, the candy maker Fini, the agricultural company Planasa or the hydrocarbons company Exolom (formerly CLH). There are two forces at work in the market which have caused all these transactions to end. On the one hand, the fear of the arrival of recession. On the other hand, the closure of the debt markets has prevented funds from getting the support needed to make these acquisitions. In the case of obtaining it, the coupon was so high that it represented a reduction in price that sellers were unwilling to accept.

Inigo del Val, partner at Allen & Overy, explains, “Banks are not being able to price the loan for the full duration of the auction. The sponsors are obliged to assume 100% of the risk of loan volatility.”

The doubt of the sector is now when will the activity return in this area. Experts consulted Coincidentally to set their sights on ECB President Christine Lagarde. They believe that the market will revive when it shows clear signs of stopping interest rate hikes and inflation has peaked, as money still has plenty of money to spend. Something they look forward to in the second half of the year.

“It looks like it will be a tough first semester, but we are hopeful that things will improve from the second semester onwards. We are confident that recovery will come next year, but it will not reach the level of 2021. There have always been operations.” , even with higher types and it is likely that we will not see the levels of previous years again,” says Del Val.

Times of National
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