July 25, 2021

Strengthen the scale | Economy

Strengthen the scale | Economy

During the last few years, the global market for corporate transactions has registered a great performance. This dynamic has been supported by the consolidation of growth expectations, in very attractive financing conditions, and in the effects that financial repression has caused on assets quoted in the markets, with the breakdown of the balance between profitability and risk assumed. .

In the domestic market, the year 2018 has maintained the trend of good performance of operations, sharing characteristics with the trend observed over the past years. Among others, the sustained role of international funds (responsible for more than 70% of the total investment in the venture capital market), and the predominance of operations focused on the middle market (operations between 10 and 100 million euros), which it has registered maximum levels, acquiring practically 1.ooo million euros of investment to date, with 85% of the investments concentrated in the smallest band in this segment.

The trend towards the origination and closing of operations focused on smaller companies has also been observed in closed operations in the markets. In the last three years, 90% of the operations completed have committed amounts of less than 500 million euros, with an average investment ticket of 65 million.

In this context of investment, the Spanish SME has continued to reinforce the trends triggered by the financial crisis. In particular, the increase in international presence, a differential element and very attractive for non-resident investors. However, this growing external positioning requires productivity gains that favor the competitive capacity of the company. Increases in productivity that, in addition to being leveraged in technological improvements, necessarily go through increases in the business scale.

In this sense, the potential for companies and investors is promising. The observation of the Spanish business network continues to show that the average size of Spanish companies is significantly lower than that of neighboring economies, due to the low participation of medium-sized companies in the Spanish economy. A greater dimension not only favors competitive capacity, but also reinforces stability in times of crisis.

Therefore, the consolidation process of middle market It should also involve smaller companies, whose role has been reduced to date. Orienting the interest towards the smaller business fabric can be a strategic advantage and an opportunity for those investors willing to take the step, which could enjoy less competition, as well as compensate for the exhaustion that could begin to be observed in the options of investment in larger companies.

Pablo Guijarro and Isabel Gaya are professors of Afi School of Finance


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