Technology, Energy, Real Estate and ESG drive M&A in Portugal

During 2021, the Mergers & Acquisitions (M&A) area reached global historical highs, in terms of the number of operations completed and the associated amount. However, the current geopolitical and economic context could soften this dynamism of activity, encouraging a wait and see stance on the part of investors. In fact, according to data from the TTR - Transactional Track Record for the 1st quarter of 2022, a slight slowdown in activity should be noted.

Portrait of the last decade in Portugal

Despite the adverse context, it is important to mention that structural changes have taken place over the last decade in Portugal, namely the high liquidity and successful divestment processes by Private Equity and new capitalization dynamics introduced by Banco Português do Fomento. In this sense, it is expected that dynamism will be maintained, mainly in a set of more attractive sectors.

It is expected that the technology sector – with a special focus on digitalization and cybersecurity – will carry out various operations resulting from the growing reputation of Portuguese company's skills globally. In this area, M&A is very relevant, because it enables the rapid acquisition of skills, raising capital for accelerated growth or entry into foreign markets.

Uncertainty scenario

In a scenario of uncertainty, a demand for investments with incorporated real estate is also expected, with the aim of reducing risk. This scope includes the hotel sector, motivated by the logic of sectoral concentration, as well as the liquidity needs caused by the pandemic. It is also worth highlighting the logic of concentration in the agricultural sector, with special relevance for companies dedicated to olive groves, vineyards and almonds.

Considering the conflict in Ukraine, the European Union's goals for decarbonization and the rationality behind the development of the renewable energy sector (promoters license and build for later sale to long-term operators), high enthusiasm is expected from players in this area.

Incorporation and application of ESG (Environmental, Social and Governance) criteria

Also the incorporation and application of ESG (Environmental, Social and Governance) criteria in organizations, aiming to contribute to a more sustainable society, can boost M&A operations. In national terms, the Strategic Capitalization Fund stands out, promoted by Banco Português de Fomento, as well as a set of Venture Capital Companies (SCR) specifically oriented towards ESG investments. Additionally, and taking into account the new CMVM guidelines, all SCRs operating in Portugal must consider ESG criteria when evaluating investment opportunities. In this way, it is expected that investors will have a greater appetite for companies aligned with these practices.

M&A Trends

Finally, in a period of expected economic recovery, there are several macroeconomic changes with an impact on companies' costs, such as the rise in the prices of energy and other raw materials. Given the historical levels of debt of Portuguese companies, a period of greater difficulty for the Portuguese business sector is foreseeable.

However, the recent legislative changes made within the scope of the Special Revitalization Program (PER) and the Extrajudicial Business Recovery Regime (RERE) provide a favorable context for the revitalization of companies, and it is expected that companies will be acquired for later restructuring. It is also worth mentioning an increase in the number of Private Equity Funds operating in Portugal focused on this type of operations.

Conclusion

In conclusion, and at a time when investors have liquidity and are looking for stability and confidence, Portugal could offer a very interesting context for carrying out investments in a proximity logic, which could enhance buying and selling operations in our country.

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