In the first half of 2022, the number of deals in the global market hit a record 60,000, with a value exceeding $5 trillion. However, the complex economic landscape resulting from rising inflation, higher interest rates, falling stock markets, the energy crisis, aggravated by the conflict between Russia and Ukraine, and material shortages could slow the boom in large deals and bring about a paradigm shift in the second half of the year.
Despite all these challenges, interest in deals in Spain's lower mid-market segment, made up of companies with €3M to €40M in revenue, continues to grow, driven by several factors:
- The growing trend toward consolidation in traditional sectors such as food, industrials, and services, where many companies coexist with a clear lack of succession.
- The recent approval of a new insolvency law (Ley Concursal) that facilitates the partial or full sale of viable companies unable to meet their debts.
- The high competition for and valuations of large international deals compared with SMEs, which make it possible to complete deals at realistic prices or to buy several targets in the same sector and merge them. These are known as roll-up deals.
- The current macroeconomic context itself makes financing difficult because of its high cost and long decision times. This, together with the end of many support programs SMEs relied on, is leading them to consider bringing in private capital to save their businesses.
- The return potential of investments in smaller companies during periods of recession like the one we're in, as shown by a recent PwC study. That is, as long as the acquisition and integration structure is optimal for the parties and is carried out successfully.
This ecosystem encourages private equity funds to apply their experience to family businesses, optimizing their processes, strengthening their sales teams, and increasing the value of the country's productive fabric.
On the one hand, many of the large private equity funds that already have their platform companies in place, from which they pursue inorganic growth strategies, are actively looking for smaller complementary companies. On the other hand, the recent approval of the law allows many family businesses to turn this moment of uncertainty to their advantage, generate liquidity, and come out stronger, ensuring their continuity and survival in the medium and long term.
Not only is there investor appetite, but companies are now more familiar with the benefits of having professional partners who help them maximize their value.
It's time for business owners and investors to act boldly and lay the groundwork for the coming years, achieving the most important goals for their business and using M&A activity to seek out opportunities that can create value in an increasingly challenging economy.
