Private Equity and Portugal is not something that is commonly heard of as Portugal was never a country with a tradition to host many private equity firms. That was the case until recent years. Nowadays the panorama has changed dramatically. Portugal’s economic expansion and recovery is making the country a trendy destination for the wealthy and famous to settle in, with the likes of Madonna and Eric Cantona to be known to live in Lisbon.
The amount of equity investments that took place in Portugal have more than tripled, reaching a 7 billion euros figure, in the past three years alone. According to the consultant firm TTR, Portugal is a “rebounding economy hungry for capital”. Even Warren Buffet himself has hopped in on this trend with Berkshire Hathaway HomeServices forming a partnership with Portugal Property to invest in the Portuguese housing market.
It is also worth mentioning that the Portuguese government, aware of the positive economic benefits that a private equity outbreak can have in the economy, is offering to partner with private investors, lower financing costs and giving tax concessions to further encourage investment. There is even a designated scheme called “Capitalizar”, which directs private equity to smaller, struggling firms, which would normally have a hard time trying to obtain a loan at a traditional bank. It is therefore crucial for the Portuguese government to be able to maintain a stable tax regime for private equity, if it wishes to keep attracting more in the future.
According to Joao Rodrigo Santos, a partner at Atena Equity Partners, this sector is very dynamic with a lot of foreign investors looking to take advantage of the economic growth Portugal is experiencing. If a couple of years ago, most acquisitions were made in the context of distressed assets and unbalanced financial structures, nowadays there is a high level of interest in traditional buyouts of healthy and profitable firms.
“Nowadays there is a high level of interest in traditional buyouts of healthy and profitable firms.”
Reinforcing this same idea, Antonio Rodrigues, a PwC Partner, also considers that the current private equity industry in Portugal is now a lot more focused in acquiring healthy companies with high growth potential rather than companies with bad assets and in financial distress. The M&A market in Portugal is therefore reaching a consolidated stage like its neighboring country Spain.
Given the current positive economic stage Portugal is enjoying, M&A with private equity operations are not only executed in large scale operations but are now happening in the mid-market level also. Most buyouts occur with companies that have a competitive advantage in the domestic market and with export capabilities.
In terms of industry sectors, the ones that show the highest growth potential are technology, food, healthcare, education and tourism. In Antonio’s Rodrigues opinion, these are the ones that are expected to show more drive in the future. To what concerns the financial sector, most financial institutions are expected to promote portfolio sales containing real estate assets and non-performing loans. This is because capital ratios are now more demanding than ever, forcing these institutions to sell those assets, if they wish to respect those ratios.
“The M&A market in Portugal is therefore reaching a consolidated stage like its neighboring country Spain.”
Bearing all this in mind, there is no doubt that Portugal is attracting more and more foreign investors every day, increasing the amount of private equity firms in its economy. The economic growth that has been experienced in these past few years has certainly played a pivotal role in what concerns stability and keeping investors’ expectations high in terms of future market performance. With so much foreign capital now entering the Portuguese economy, it is of the upmost importance for the Portuguese regulators to ensure the tax system is beneficial and attractive for private equity. Examples of success in this matter can be found in Spain, which is a much more mature economy in this matter, therefore the way the Spaniards handled that growth years ago should be carefully examined by the Portuguese government. There is still a long way to go, as Portugal is still in the early stages of a mature private equity market, nonetheless, up until now, the right measures and steps have been taken to ensure this growth is done successfully and sustainably.
Article published in our December 2019 Newsletter
Rodrigo Marques, MSc in Finance