Spanish M&A resists market pressures in H1

The country’s hotly targeted renewables sector ensured a steady flow of deals in the first half of the year

Dealmakers across Europe were hampered by elevated core inflation rates and a darkening economic outlook in the first half of 2023. The constrained financing environment has put a check on dealmaking activity across the continent.

Spanish M&A, however, has remained fairly resilient in the face of economic headwinds. While deal momentum slowed relative to the boom in activity over the last couple of years, H1 activity remains above pre-pandemic levels. And there are signs that the picture could be brightening further, with a total of US$18.5 billion spent across 376 deals in H1, representing a 21% increase in value terms from H2 2022.

The highest-value H1 deal targeting a Spanish asset saw Italian insurer Assicurazioni Generali acquire Liberty Seguros, the Madrid-headquartered insurance business of US insurer Liberty Mutual Holding Co., for US$2.5 billion. The deal will give the Italian insurer access to new markets in Spain, Portugal, Ireland and Northern Ireland.

International buyers snap up renewables

While the financial services sector secured the largest deal of the year so far, Spain’s energy sector—specifically its renewables—is proving to be an engine for dealmaking. Its strength has been a major factor behind the hardiness of the country’s M&A market during the first half of 2023.

Spain is in the vanguard of Europe’s renewable energy push and is set to generate more than half of its power from renewable sources this year. If it succeeds, it will be the first European country to achieve this goal, according to Rystad Energy forecasts. 

It is no surprise, then, that international eyes are firmly trained on the sector. Some significant deals took place in the first half of the year, the largest of which was Canadian investment group Brookfield Renewable Partners’ purchase of a 50% stake in solar power developer X-Elio. The deal, valued at US$1.9 billion, will see US investment giant KKR divest its stake and Brookfield take full ownership of X-Elio. Founded in 2015, X-Elio has more than 10 gigawatts of renewables capacity in its near-term pipeline.

Another big-ticket investment by an overseas investor saw Singaporean sovereign wealth fund GIC direct US$902 million toward EDP Renováveis (EDPR). The deal is a major boost as EDPR—the world’s fourth-largest renewable energy producer—intends to nearly double its renewable energy capacity to 33 gigawatts by 2026.

Norway’s sovereign wealth fund, Norges Bank Investment Management, has also expanded its position in Spain’s lucrative renewables sector, acquiring a 49% stake in Iberdrola’s Spanish renewables portfolio. The strategic alliance, valued at US$649 million, will see the two partners co-invest in 1,265 megawatts of new renewable capacity in Spain, comprising 20% wind and 80% solar power assets.

SPACs target renewables potential 

Signaling the high-growth potential of Spain’s renewables sector, US-listed blank check company RMG Acquisition Corp III merged with H2B2 Electrolysis Technologies. The US$750 million deal will see the green hydrogen producer go public on the Nasdaq stock exchange. 

A key draw for RMG was H2B2’s well-established global footprint, which covers Europe, the US, Latin America, Asia and the Middle East. The hydrogen producer also has a robust pipeline of an estimated 260 projects, with around 5.6 gigawatts of potential projects identified.

Further investment in green hydrogen projects will be crucial if the European Union is to meet its ambitious target of producing 10 million tons—and importing another 10 million tons—of green hydrogen by 2030. Green hydrogen is seen as an essential part of reaching the bloc’s goal of cutting greenhouse gas emissions by 55% by 2030, yet use of the gas is not yet widespread. 

The push to become independent from Russian fuel exports has further increased the urgency to develop renewable energy sources such as hydrogen and biofuels. 

Third-party renewable providers attract investment

Dealmaking interest in renewables has expanded beyond the energy sector, as investment in supporting services becomes essential. The industrials sector, for example, saw a few key transactions as international buyout firms look to earn their share in the fast-growing industry. 

The largest such deal was UK buyout firm Cinven’s US$883 million purchase of Amara NZero. The Madrid-based firm provides a number of products and services related to the energy transition, including the maintenance of wind turbines and hydro plants.

Spanish infrastructure service providers are also of interest to international investors. In May, UK private equity firm Bridgepoint acquired a majority stake in Windar Renovables, a manufacturer of towers and foundations for wind turbines, as it looks to capitalize on rising demand for both onshore and offshore wind energy. 

Airline M&A faces regulatory headwinds

Airline carriers are experiencing a long-awaited return in consumer demand. With international travel firmly back on the agenda, many airlines are turning a profit for the first time since COVID-19 struck. This returning confidence is prompting consolidation within the industry, with airlines looking to firm up access to new markets.

One such deal in H1 was the US$424 million bid for Spanish airline Air Europa by International Airlines Group (IAG), which operates flag carriers British Airways and Iberia, in a move to increase access to the lucrative Latin American market. 

It is the second time the Anglo-Spanish group has attempted the deal, after an initial bid in 2019 was abandoned due to regulatory concerns. IAG’s latest play is also expected to face intense scrutiny from EU regulators, given that it is the largest airline operator in Spain, and Air Europa is the third.

Looking to the rest of 2023, rising interest rates and macroeconomic uncertainty could yet dampen Spain’s dealmaking market. Yet the country’s renewables sector—the jewel in its crown—will likely remain a bright spot.

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