Insights into Mergers & Acquisitions
Interview | Managing Partners

You are experts in buying distressed IT companies. What makes distressed transactions different?
In ArsCorporate we know pretty much what the challenges of a distressed company and its shareholders look like in general, and particularly in Spain. And for these challenges, when two firms want to make a deal, we do have solutions in place. We work with many domestic and international investors that are interested and specialized in turning around and/or restructuring financially or operationally distressed companies. We help and support them in finding the right company at the right terms. Acquiring a financially distressed company is quite different, and often more challenging, compared to acquiring a healthy company in a usual M&A process. The buyer might have to face challenges such as a reduced timeframe, scope or even visibility in financials. Solutions like for example synthetic warranty and indemnity insurance might come in very handy in such situations.

Which process do mergers and acquisitions advisors or specialists follow in order to succeed in the purchase and sale of companies?
M&A is people business. There is a process for acquisitions and another one for divestments in place. These processes are standardized globally and constitute the pre-setting. The prerequisite for a successful transaction is to find the right counterpart in the first place. But the key element to succeed in a transaction is the ability to deal with the people and their expectations of both parties, the buyer and the seller. That is one of our strength. With these skills, coupled with our experience we work with our clients to achieve the best results for them.   

How long does it take M&A advisory firms to sell a mid-size company and what requirements does the company have to comply with?
Talking about sell side processes there are numerous factors that can affect the transaction time. Some of them can be influenced by the seller and its adviser, others cannot. An example of the latter are market sentiment and momentum in general and of a specific industry in particular. Notwithstanding, the process speed can be influenced by the seller primarily through the preparation of the transaction. It is helpful when all the necessary documents like teaser, information memorandum, non-disclosure agreement, process letter and alike are prepared in advance. The same applies for the preparation of the data room. The provision of a vendor’s due diligence accelerates the process additionally. In these days, digitalization has also found its way into the M&A industry. Artificial intelligence and machine learning based transactional diligence, contract analysis and risk identification not only reduce the transaction time and cost, but also increase accuracy. Depending on all these factors, a transaction can take less than four months, more than one year or anything in between to close.

What are the industries with most transactions in Spain?
The M&A environment has been heavily impacted by Covid-19. Many companies did have to change their priorities which led to much less M&A activity on a global scale. Since May, the absolute low point in M&A activity in Spain, we see increased activity in any industry. Most of the transactions that have taken place in the market concern the following industries: Industrials & Chemicals, followed by Consumer, Business Services and TMT.

Is there a difference for M&A advisory firms when they advise on the purchase or the sale of a Spanish or a foreign company?
The skills required for buying or selling companies are slightly different. There are M&A advisory firms in the market that specialize only in buyers or sellers. However, most M&A advisory firms provide advice to companies and shareholders on both the buy-side and sell-side. I particularly do not see any advantage in specializing on either niche only. M&A advisory firms, investment banks and investment bankers represent exclusively one of the parties, either the buyer or the seller. Having said this, the advisor’s role when representing one or the other party changes accordingly. When we represent a buyer, we tend to look for proprietary deals whereas when we are retained by the seller, we would rather set up a limited or full auction process, for example.

Could you comment on any success story related to the acquisition or divestment of a business in Spain?
Recently we have been retained by a multinational TMT player that has been seeking to acquire a company in a vertical software niche in Spain in order to expand to Iberia. We found the firm with right fit and managed to set up a proprietary process in a sector that was an absolute sellers’ market at that time. Thanks to the combination of a proprietary process and skillful negotiation we have been able to complete an acquisition below the average market price to the benefit of our client and to the satisfaction of the business owners.

Currently, we are hearing news about emerging sectors such as cybersecurity, the cloud computing and others. What other sectors are most in demand in advisors for the purchase of companies in Barcelona or Madrid?
Despite of the Covid-19 and besides the sectors such as cloud solutions, managed hosting and cybersecurity, we are currently looking at acquisitions for our client in very different sectors such as media and publishing, medical tools, pharmaceuticals, industrial system solutions, digitalization services, hospitality, food & beverage, and industrials to name some.

The internet of things promises to be one of the fastest growing sectors. What other sectors are strongly growing in Spain?
During the period of Covid-19 we can see some clear winners that are pharma, food & beverage, telecommunication, logistics, software and e-commerce. 

Post Covid-19, it must be distinguished between growth driven by recovery and by reinvention. Industries that have taken a severe hit during the pandemic period like the hospitality & leisure or the transportation industry will show high growth rates in the post-Covid period. More interesting is the question in which industries a shift towards new consumer behavior has taken place which will remain. We expect the beforementioned winners in the crisis to remain strong post-Covid-19. Additionally, industries such as online education and training, virtual entertainment, WFH related services, e-health, e-sports among others are expected to grow disproportionately. 

What are the benefits for a buyer to retain an M&A advisory firm in Spain?
The reason for engaging a M&A advisor in a buy-side process is manifold. For sourcing acquisition candidates, the M&A expert provides local knowledge and relationships that help to source and approach the target companies with the right fit for the buyer. When it comes to the execution, cultural knowledge of both, the buyer coming from abroad and the Spanish seller, can be key since the very beginning. I have seen many frustrated transactions due to cultural clashes, even between parties from neighboring countries. Even though the transaction process is the same on the paper here in Spain and in Germany or the United Kingdom, there are differences when it comes to the process execution that are not written anywhere. M&A is people business. Many buyers tend to purchase in other countries without sufficient preparation or the necessary resources. In these cases, a local M&A expert increases the success rate significantly. Additionally, the M&A advisors not only saves a lot time to the buyer but also delivers the necessary local insights.

What actions would you recommend and what should be taken into account when buying companies?
I tell the acquirers the following: 

• Know what you want to buy and why. 
• Check the current level of pricing in the target markets. 
• Prepare an acquisition strategy.
• Get local support.

You are experts in buying distressed IT companies. What does it make so different buying a distressed IT company?
As ArsCorporate has advised the acquisition of a number of distressed companies, we know what’s critical and what’s not.
We also know how to deliver in the much shorter timeframes of a distressed acquisition.
We’ve got experience with all the challenges that a distressed or pre-distressed acquisition brings. Also, we know how to deal with insolvency lawyers and what’s possible and what’s not.

What process do mergers and acquisitions specialists have to follow in order to succeed in the purchase and sale of companies?
The M&A process is standardized, and Spain is no different. But M&A is a people business where you must consider and deal with people’s expectations, ego and fears. Of course, we also know how to deal with Spanish company owners, in terms of the cultural differences in comparison to other countries or styles. Knowing the market, the industry and the (legal, tax, labour,…) environment is also a must, and we can safely offer this.

How long does it take m&a advisors to sell a medium company and which requirements does the company have to comply?
12 months (6 to 18 months) depending on a variety of factors, some internal (company, people,…), some external (market, macroeconomy, taxes,…).

What are the industries where you see most transactions in Spain?

• Industrials
• Chemicals
• Consumer
• TMT

Is there a difference for m&a advisory firms when they have to purchase and sell a Spanish company or a foreign company?
Despite the fact that an M&A process is standard everywhere, certainly there are a variety of Spanish cultural and legal issues that you have to know to avoid your deal fails or gets jeopardized.
We act as a bridge for you, understanding what you want and need and what’s possible in the market, avoiding out-of-sync issues that could ruin a deal.

Could you comment on any case of success in buying and selling businesses in Spain?
We’ve advised a deal in the machinery manufacturing arena where we were able to conduct an informal auction between three different bidders. The result: the seller got a 35% premium on top of the average of the initial offers.

A European Group in the TMT arena bought, advised by ArsCorporate, one of the market leaders of its segment in Spain, with a valuation seen as very interesting for the buyer, our client, and the seller. In the end, our client got access to the key accounts in the segment of the seller, in a very short time.

Currently we hear news from emerging sectors such as cybersecurity, cloud computing services and others. What other sectors are most in demand and look for advisors for the purchase of companies in Barcelona or Madrid?

• IT
• Industrials
• Digitization
• Food & beverage

The internet of things promises to be one of the fastest growing sectors. What other sectors have more growth in Spain?

• Communications
• Gaming
• Delivery and transportation
• Healthcare
• X-tech companies (fintech, insurtech, foodtech, edutech, legaltech, healthtech, etc.)

For a company located in any Spanish city such as Barcelona, Madrid, Valencia… Can you give some advice for sell the company correctly?

First, to prepare the target for the sale, solving all legal and tax problems that could have. Of course, hiring a professional M&A advisor.
Second, to structure properly the deal, to maximise the returns and minimize the risks.
Third, to bring to the table the best bidders, ideally in a auction or an informal similar process.
Fourth, to negotiate in advance as many conditions as possible, to let the lawyers a very clear and narrow playing field.

Everyday digital crimes increase, in consequence, cybersecurity companies are increasingly valued better, in which countries are more cybersecurity companies?
USA and Israel.

How can I make sure I get the highest price for my business?
First, to prepare the target for the sale, solving all legal and tax problems that could have. Of course, hiring a professional M&A advisor.
Second, to structure properly the deal, to maximise the returns and minimize the risks.
Third, to bring to the table the best bidders, ideally in a auction or an informal similar process.
Fourth, to negotiate in advance as many conditions as possible, to let the lawyers a very clear and narrow playing field.

Which are the benefits for a buyer to retain m&a advisory firm in Spain?
Market knowledge (to find who’s going to buy or sell the company).
Cultural fit, to avoid mistakes.
Experts in buying and selling companies and, consequently, experts in knowing what’s in the market, what you can ask, what you can accept, etc.

The Internet of Things companies are raising more money every time around the world, which is the main challenge for the advisors in these companies?
Like any other technological company, in any segment or industry, it’s critical to be able to demonstrate the buyer that your products are really good and reliable and that they solve consumer needs in an efficient manner, as well as competitive costs.

Could you explain any successful example of a specific case of the sale of companies that you have recently carried out in the last year?
We’ve advised a deal in the machinery manufacturing arena where we were able to conduct an informal auction between three different bidders. The result: the seller got a 35% premium on top of the average of the initial offers.

A European Group in the TMT arena bought, advised by ArsCorporate, one of the market leaders of its segment in Spain, with a valuation seen as very interesting for the buyer, our client, and the seller. In the end, our client got access to the key accounts in the segment of the seller, in a very short time.

What actions would you advise taking and what should be taken into account when buying and selling companies?
First, to prepare the target for the sale, solving all legal and tax problems that could have. Of course, hiring a professional M&A advisor.
Second, to structure properly the deal, to maximise the returns and minimize the risks.
Third, to bring to the table the best bidders, ideally in a auction or an informal similar process.
Fourth, to negotiate in advance as many conditions as possible, to let the lawyers a very clear and narrow playing field.