What has just happened?
Spain's biggest economic hurdle has been youth unemployment, at around 40%, for many years.[1]Now it has become one of the hardest COVID hit nations within Continental Europe. The nations’ central bank has predicted a 15.1% contraction in the economy if there is a 2nd wave of lockdown restrictions. [2]
Yet, Spain’s M&A market has defied the crisis with a comparatively robust start to the year. [3]
What does this mean?
At the beginning of the pandemic, the global response was to try and raise capital in order to cover any short-term liquidity issues. Now firms are beginning to use the pandemic as an impetus for multinational restructuring.
The slow growth of the global economy reduces the likelihood of organic growth occurring. Thus, there is a shift within the global economy to use M & A to restructure and use the pandemic for a change.
Specifically, Spain is home for 30 (approximately) multinational firms looking to restructure their business operations. [4] Most notably, there is a trend to reduce spending on office spaces and non-essential capital.
Furthermore, as Spain prepares for the recovery of the tourism industry, Azora[5] has raised €680 million for a new fund focused on hotel investments. [6]
To counteract Spain’s reliance on the tourism and hospitality industry. The Spanish economic recovery plan is heavily routed in investment within telecoms and private equity. The current American takeover of Másmóvil, one of the largest telecoms’ firms in Spain, is estimated at over €5bn making it one of the largest since the pandemic started. [7]
The telecommunication industry has shown display defensive qualities during the economic downturn, especially as the recession is not largely caused by consumer confidence. The European lockdown measures calls to work from home and rise in the use of home entertainment makes this industry an effective opportunity for investment.
Impact on the Legal Sector
The American take-over of Mámóvil, follows the overruling of the European Commission’s (EC) 2016 decision to block the £10.25bn takeover of O2.
This ruling is a blow to the agenda of Vestager who is the EC Commissioner and is driven to stop collusion within the telecoms industry and between large multinational firms. [8]
Although, the EC has stated that it will appeal this ruling. There is growing confidence and anticipation for future M & A deals amongst bankers and lawyers acting for some of Europe’s largest telecoms companies.
This gap between rulings, has paved the way for a new round of consolidation in the telecoms sector. Thus, it is likely for lawyers to begin the research process into new and emerging firms which larger tech companies may wish to acquire. Acquisition is a common occurrence within the technology sector as larger firms look to absorb the talent and diversity of thought of start-ups.
However, within the public sector there are addition hurdles for investment within the telecoms industry in Spain. Since March non-EU investors require temporary authorisation if they wish to control or increase their participation to more than 10% in a domestic company within certain sectors.
This is been partly imposed by the EC as part of its economic stability plan during the Pandemic. In which it issued a ‘non-binding’ but preferred guidelines for the increased scrutiny on FDI within the European Community. These screenings looked to decrease any volatility within European markets during the pandemic.
Written by Megan Hornsby
Assessing Firms:
Linklaters LLP, Slaughter and May, Allen & Overy LLP, Ashurst, Clifford Chance LLP, Herbert Smith Freehills LLP, Baker McKenzie
References:
[1] Trading economics, ‘Spanish Youth Unemployment Rate’ ( Trading Economics, 2020) accessed on 20 November 2020 <https://tradingeconomics.com/spain/youth-unemployment-rate>
[2] Nic Fildes, ‘Spain’s MasMovil to be acquired in €5bn private equity buyout’ (Financial Times, 1 June 2020) accessed on 20 November 2020 < https://www.ft.com/content/0f1bd080-aab2-46ec-870e-0edc65ae4878>
[3] Juan Manuel de Remedios, ‘Spanish dealmaking defies health and economic crisis’ (White and Case, 15 Sept 2020) accessed on 20 November <https://mergers.whitecase.com/highlights/spanish-dealmaking-defies-health-and-economic-crisis>
[4] Nic Fildes, ‘Spain’s MasMovil to be acquired in €5bn private equity buyout’ (Financial Times, 1 June 2020) accessed on 20 November 2020 < https://www.ft.com/content/0f1bd080-aab2-46ec-870e-0edc65ae4878>
[5] A Madrid based Private Equity firm
[6] Juan Manuel de Remedios, ‘Spanish dealmaking defies health and economic crisis’ (White and Case, 15 Sept 2020) accessed on 20 November <https://mergers.whitecase.com/highlights/spanish-dealmaking-defies-health-and-economic-crisis>
[7] IBID
[8] Jennifer Rankin, ‘Margrethe Vestager gets a second term in EU competition job’ (2019) The Guardian < https://www.theguardian.com/world/2019/sep/10/margrethe-vestager-gets-second-term-in-eu-competition-job>
Disclaimer: This article (and any information accessed through links in this article) is provided for information purposes only and does not constitute legal advice.