Despite the threats and risks gripping Spanish politics and the economy, it doesn’t seem that foreign investors are particularly worried for the time being. At least that is what the figures for foreign investment in Spain indicated, both in terms of direct and property investment. It looks as if venture capital disbursement in Spanish companies has hardly suffered, not due to a lack of interest but because the operations being considered were not yet mature.
In fact foreign direct investment, one of the key barometers of investor sentiment as it reflects long-term and not short-term bets, has increased. It grew 13% in the first half of 2016. The property sector also continues to fuel huge interest on the part of international investors, from investment funds to insurance companies. This is largely due to the role played by the Socimis, real estate investment trusts which are buying up almost everything.
This influx of foreign investors is partly due to the fact that domestic investors and the banks are keeping their distance. They are already stuffed full of real estate assets inherited from the pre-crisis years which, more than anything, are keen to sell. For the whole of 2015, property investment volumes grew 25% to 13 billion euros from a year earlier, according to a study by CBRE. Of this amount, 70% came from outside Spain, mainly from the US, the UK and Germany. Having represented only 13% of total productive investment in 2012, property investment stood at around 27% in March.
Venture capital has faired slightly worse this year. Investments in Spain have fallen almost 30% in the first half. But sector representatives say this is mainly because it has only been possible to close five big deals of more than 100 million euros.
So perhaps it would be rather bold to presume that ‘private equity’ is slowing down in Spain. The main idea of those involved is that investments will multiply in the second half of the year, which is what usually happens. And there are a numerous operations in the pipeline, which are simply being studied or negotiated. This could even mean that this year, in the end, there will be a new record in private equity investment in Spain.
For the time being, there are more and more companies and funds arriving in our country. Last year saw 53 new operators registered. All the big sector names have plans for the Spanish market. Ardian, one of the largest investment funds in Europe, has announced that Spain is one of the main targets of its new 4.5 billion euros midcap fund. And funds like CVC, KKR and TCI, already with a big presence in the country – they were tipped as candidates for the acquisition of 20% of Gas Natural – are brimming over with M&A projects in Spain.
An executive from KKR, which has invested 26 billion euros here, confirmed it hopes “to maintain the pace of investments in Spain,” which is one of its key markets. It is the only one in Europe, apart from France, where the private equity firm has its own representative office. This environment is being shaped by operations like the sale of 20% of Gas Natural by Repsol and Criteria Caixa to GIP for 38,02 billion euros. Or Fresenius Helios’ buy of the Quirónsalud private hospitals for 5.760 billion euros.
What’s the origin of all this optimism? The fact that no-one thinks the worst will happen, namely an ‘impossible’ government made up PSOE, Podemos and the Independents. That there could be a third round of general elections and the current situation will continue, with a caretaker government? Well it seems that foreign investors don’t see that as a catastrophe. Despite having its hands fairly tied in many aspects of government, the caretaker administration has effectively guaranteed a good investment environment.
But, furthermore, both industrial and private equity investors are interested in Spanish companies: the prices are attractive, the good ones are highly internationalised and others need fresh cash to restructure their balance sheets and embark on new projects. A great opportunity. And the banks are still having problems with granting loans, so this opens the door for foreign investors, particularly the venture capital firms.
Lastly we need to remember that all the indicators, ranging from consumption to GDP growth, for which the IMF has just raised its forecast, continue to give signs of strength and momentum. For now, and in spite of warnings from many economists and politicians about this inertia, you couldn’t really say there is a lot of concern about it.