Best ever Q1 to Q3 Spanish capital market deal count generating placement, competition, reporting and regulatory work, but how long will the good times last?
Spain's capital markets are hitting new heights, with law
firms circling issuing companies and underwriting banks in an
attempt to get a slice of the action. Data from Dealogic shows that
there were 33 placements with a combined value of $21.6bn in the
first three quarters of the year – this represents the best
ever Q1 to Q3 deal count in the Spanish capital markets. In
addition to advising on the placements, law firms are also picking
up follow-on work related to compliance, reporting and regulatory
obligations. However, with more firms targeting the sector,
competition is intensifying with the result that legal fees are
dropping.
Big ticket initial public offerings (IPOs) are on the rise with
seven sizeable floats this year: Lar Espana Real Estate; Hispana;
Logista; eDreams; Applus; Merlin Properties; and Axia Real Estate.
The listings brought in $6.5bn between them. Call centre company
Atento, meanwhile, is looking to float on the New York Stock
Exchange.
Javier Redonet, partner at Uría Menéndez, says the
last boom in the Spanish IPO market was in 2006 and 2007, when
there were around 10 deals a year. "Since then, only a few
IPOs have been launched. The main activity in the last few years
has been on MAB [Mercado Alternativo Bursátil]– the
alternative market, which has closed around 30 small-cap listings.
Now, the main board is coming back to pre-recession
levels."
Yolanda Azanza, a capital markets partner at Clifford Chance, says
the growth in equity capital markets (ECM) volume is mainly driven
by improved prospects in the Spanish economy, the high levels of
liquidity and investors' increased appetite for risk.
One of the factors in the IPO surge has been private equity firms
looking to generate new capital. Rather than selling companies
through M&A transactions, some private equity houses are
turning to the capital markets as a way of exiting investments. For
example, eDreams Odigeo was floated by Permira and Ardian while
Applus was listed by a Carlyle-backed fund. Atento is backed by
Bain Capital.
Lawyers say international law firms with a local presence and
Spanish law firms working together with international law firms are
benefiting the most from the IPO surge. Redonet says acting for the
issuers is also a good way of securing potential post-IPO follow-on
work. "This is because, once listed on the stock exchange, a
business has ongoing issues such as compliance, reporting and
regulatory obligations," he says. "A law firm acting as
the issuer counsel is in a better position to pick-up such work
than a law firm advising the underwriters."
Fees dropping ´dramatically´
However, Azanza sounds a note of caution, saying the growth in
ECM volume is seeing more firms targeting the sector. "An ECM
transaction such as an IPO may involve a huge amount of work,"
she comments. "However, competition among law firms has made
prices drop dramatically so ECM transactions may not be very
profitable for law firms... in this context, having a strong
expertise and understanding of regulation is crucial. An
international network is also a plus taking into account the
opportunity offered by the reach of our global
resources."
Questions also remain over the sustainability of the IPO flow,
especially based on the performance of the stock post-IPO. Out of
the seven aforementioned major IPOs, only Hispania and Logista have
improved their initial issue price. The other five fell from
between three per cent (Merlin) and 60 per cent slump
(eDreams).
Redonet is not too concerned though, adding that while there has
been some talk about post-IPO stock price performance, four out of
the seven recent IPOs aimed to generate capital for financial
vehicles – the so-called "blind pools" – that
do not have any assets at the outset. "As such, the listings
were more of a cashbox than a flotation of a long-established
industrial business, so one should not expect major gains or losses
in the first months of trading," he claims.
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