Regional Guide to Europe: Southern Europe

Both Spain and Italy have rich potential, say fund managers, as deal opportunities continue to expand in the region.

Spain and Italy remain the biggest markets for private debt in Southern Europe, with Spain showing especially strong growth. According to Oquendo Capital, around half of all the private equity transactions taking place in Spain now have some kind of private debt involvement, whether that’s unitranche, junior debt or funds coming in alongside banks. The firm’s own figures suggest that proportion has gone up from around 30 percent of deals as recently as two years ago, with penetration continuing to grow.

Several European lenders have opened offices in Spain in recent years, including Ares, Tikehau Capital and Pemberton last September. The increased competition is most notable for the large deals, says Oquendo founding partner Alfonso Erhardt: “There are a lot of transactions going on, with the larger deals covered by the same players that are doing the deals in France and the UK. The smaller deals get done by local funds like us.

“In Spain, the local banks are quite active but happy to structure deals alongside funds, so we see a lot of bank plus fund cooperation. Maybe the banks have a little less appetite than they had pre-covid, but really for the banks the substantial question is whether the deal is for an existing client or not.

“When a company is being bought by private equity and it is a relevant historic bank account, then the banks go all out and will do whatever it takes not to lose a client. If the company is unknown to the bank though, then they don’t care.”

Number of Southern Europe-based funds in market

Total amount targeted by funds in market

At Kartesia, founding partner Jaime Prieto says Italy also has rich growth potential: “One of the surprises was Italy, where we started to identify opportunities. That was a market where the banks never took the pain of exiting tough deals after the financial crisis and continued to finance companies at lower rates. Now, there are international sponsors looking to acquire companies and those sponsors are very well aware of the advantages of having a financial partner providing unitranche. We have done three deals already this year in Italy and it’s not a large market; it’s seen a marked improvement.”