Deleveraging Makes Spain Ripe For M&A

Deleveraging Makes Spain Ripe For M&A

Deleveraging Makes Spain Ripe For M&A

Spain has seen its debt levels increase over the last couple of years as the global crisis has taken its toll on the economy.

When the crisis began, Spain already had stretched household balance sheets and one of the highest levels of private debt in the euro zone. But as a result of the downturn in private economic activity and the implementation of stimulus measures to boost the economy, the country’s public books are also suffering.

At the end of the first quarter of 2013, public debt stood at 88.2 percent of gross domestic product. This compares with just under 70 percent a year ago. What can the government do to ease this debt burden?

Increasing taxes is a tried and tested way of raising cash to pay down state debt, but this is detrimental to domestic demand and, consequently, to any economic recovery. Another option for Spain is to sell off some assets via privatisations, creating attractive M&A opportunities.


Over the last 18 months, the Spanish government has implemented a raft of tax hikes, most notably a sharp rise in VAT, to boost state coffers. But the impact of this fiscal austerity on public debt levels has been minimal as current levels show only too well.

So perhaps it’s time for Spain to revisit 2011 plans to privatise part of its national lottery business Loterias and some of the country’s airports managed by AENA. Both of these sales were suspended due to weak stock market conditions, although the government has not closed the door to private investment in the case of airports operator AENA.

Another company which was slated to come under the hammer is state-owned water firm Canal Isabel II.


Spain definitely has no shortage of juicy assets to dispose of, but fire-sales are not desirable so pricing will remain a key factor in any future privatisations. However the government can take a leaf out of the country’s banks and other companies. Banks have already begun deleveraging to shore up their flagging capital base, selling off non-strategic industrial assets and large chunks of their real estate portfolios, which foreign private equity firms have begun to sweep up. Nationalised lender Bankia recently sold its stake in the airline IAG.

Top firms are also trimming the fat like leading power company Iberdrola, which has sold assets in Poland, and oil and gas giant Repsol which disposed of its liquefied natural gas business earlier this year.

For information on privatisations in Spain, contact Argali Abogados

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