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Spanish private equity industry could double over next five years, says Loizaga

The Spanish private equity market could double in size over the next few years but the emphasis is likely to remain on growth and expansion capital rather than buy-outs, according to Javier Loizaga of Mercapital.

‘The market could double in the next three to five years, reaching a value of E2-3bn,' he told an SJ Berwin seminar. ‘But a significant part will continue to come from family owners looking for partnerships to grow their businesses, rather than buyers.'

Loizaga was doubtful that the increasing number of firms crowding into the Spanish private equity market could be supported by deal flow, at least as long as their strategy remained focused on buy-outs.

There are around 35 private equity houses presently active in Spain, he said, 17 of which were not present there four years ago. The dominant focus of these new players appears to be buy-outs, despite the fact that in 2001 buy-outs represented just 27 per cent of all private equity activity in Spain.

Loizaga predicted that some of the smaller domestic houses will find themselves squeezed out and that some of the pan-Europeans will pull out when they discover that the deal flow is less exciting than they had expected.

There were, however, encouraging signs that deal flow was gathering pace, he said. In particular, family-owned firms are slowly beginning to be more open to the possibility of private equity financing.

Carlos Pazos, head of SJ Berwin's Madrid office, was also positive about the bright future of Spain's private equity industry. ‘There are likely to be more and more public-to-private deals, as the Spanish government has announced that it will make legislative changes to make public-to-privates easier to effect,' he said.

There has been an increase of interest in the Spanish market of late. Advent International and Candover are two of the larger private equity houses hoping to take advantage of the fragmentation of the country there. But, said Loizaga, ‘If you think the Spanish market is interesting, you have to like growth capital and want to focus upon it in order to get enough deals to survive.'

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