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Spanish activity update

Former SocGen director Beltran Paredes heads the Royal Bank of Scotland’s Spanish division, which set up in Madrid last year. The main reason for RBS setting up in Spain is that private equity houses have a pan European culture and the bank was aware that it should be where its key customers are. “Our customers were here and we were not and that was preventing us from serving them efficiently,” he said. Major players such as CVC, Bridgepoint, 3i, PAI and Dresdner are all present in the Spanish market and there are rumours that Candover and Permira are also considering setting up local offices.

“The presence of more private equity houses will encourage more banks to arrive,” says Paredes. “All the banks arriving will add dynamics and growth potential to the market. Competition will be healthy and will make things more interesting. Also the market will become more professional and structures more complex.”

But RBS is approaching deals with caution having only completed one deal since it set up in the region. “When you arrive in a market there is the risk that all the bad deals re-route themselves to you having been rejected by the other banks. It is important to be cautious,” says Paredes.

Stewart Livingston of Bank of Scotland is confident an increased competition among the banks will be beneficial for the marketplace and can only help in raising the profile of private equity in Spain. “One of the challenges in the Spanish market is syndication a lot of banks in Spain shy away from syndication. We expect to see some retrenchment of the Spanish banks.”

Paredes agrees: “There are not a large number of banks in Spain and so syndications are not so common. Also you don’t have fantastic opportunities for syndication as deals are so small compared to the Northern European countries.” He says: “We have had a very prudent market with reasonable multiples both with acquisition and leverage terms, very few mezzanine deals and no high yield. Some of the most sophisticated instruments are still in the earlier stages in this market. Convergence of securitisation and leveraged finance hasn’t happened here yet.”

Livingston adds that deal structures in Spain will become more sophisticated. “The new entrants in Spain are used to dealing with mezzanine. We are looking at a deal with a mezzanine structure right now. This is ammunition we’ve got in Spain and we know how to use it.” If you’ve got the likes of Bank of Scotland, Royal Bank of Scotland and ICG, who are rumoured to be setting up in Spain in the near future, the use of mezzanine in Spain is bound to increase.