Spain: Up In The Air

With Spain wrestling a mammoth budget deficit, the former government initially decided to sell off certain prize assets. But after ditching the eagerly awaited partial privatisation of the country’s national lottery, LB asks if Spain’s top law firms are in the mood for celebrating.

On 12 October, Spain commemorated its Fiesta Nacional – the annual national public holiday marking Christopher Columbus’s 1492 arrival in the Americas. But with Spain’s economy still struggling there seems to be little to celebrate. The country is currently grappling with a budget deficit equal to 9.2% of GDP, which led to its former government deciding to sell off certain prize assets with a view to reducing the colossal debt.

First up was the 30% privatisation of Sociedad Estatal de Loterías y Apuestas del Estado (Loterías), the national lottery. Potential investors were expected to make their presentations to the government during October with an IPO expected to raise billions of euros. The move would have also created one of the largest companies on the IBEX 35, Spain’s stock exchange, and become the biggest IPO ever on the Spanish market.

Notwithstanding the need for cash, the Spanish government took the painful decision in September to abandon the process. This was a substantial blow to Spain’s leading law firms, as such a high-profile project meant potentially lucrative mandates.

‘Many Spanish and Portugese companies have made a decisive commitment to internationalisation.’
Fernando Vives, Garrigues

Consequently, until significant numbers of M&A deals return to the market and as the economy continues to struggle, restructuring-related work remains the flavour of the month for Spain’s top legal advisers, especially for those practices which can offer ancillary tax, labour, litigation and insolvency advice.

Meanwhile, as some of Spain’s mid-sized firms contemplate securing their future through consolidation and mergers, partner raids of law firms are happening, and new international entrants are proving that Spain’s legal services market is not to be written off.

 

Taking private

The official line from the Spanish government for abandoning the part privatisation of Loterías was that the market valuation had been too low, meaning that investors were not willing to pay the price that the government initially anticipated.

For Luis de Carlos, the Madrid-based managing partner at Uría Menéndez, the cancellation was professionally frustrating. ‘Most of the work had already been carried out, but the market conditions were just wrong,’ he says. Together with de Carlos, Uría’s partners Adolfo Menéndez, Pablo González-Espejo and Javier Redonet led the advice to Loterías as issuer and to Sociedad Estatal para la Venta de Loterías y Apuestas del Estado as selling shareholder.

Clifford Chance (CC) was appointed by the government to advise on the international aspects to the privatisation. The firm fielded a team from across its offices that included corporate partners Jaime Velázquez in Barcelona and Javier García de Enterría in Madrid. Capital markets partners Yolanda Azanza in Madrid and New York-based Alejandro Camacho also took a role.

John Gustafson, the Madrid-based managing partner at Rivero & Gustafson Abogados, likewise found the cancellation of the lottery’s IPO a huge disappointment. However, he concedes that it was not the best time to be selling it off at an undervalue.

Spain’s 20 November 2011 parliamentary elections could also have influenced the cancellation of the lottery’s privatisation. Many believe that the old government did not want to be rebuked later on for disposing of such a valuable asset while exiting from power.

Although the newly elected government, the People’s Party, has declared itself contrary to the privatisation, some commentators think that the lottery’s sale may be brought back to life. ‘The lottery is a cash cow and will come back,’ says Gustafson. ‘It is capable of generating huge appetite from investors.’

With the lottery abandoned, the focus is now on the E3.7bn and E1.6bn respective sales of Spain’s largest airports, Madrid-Barajas and Barcelona-El Prat. They are both currently managed by state-owned Aena Aeropuertos (Aena).

‘The results for legal advice to Spanish companies going outside Spain have been fantastic.’
Carlos Martinez Santiago, Raposo Bernando

The government announced the timetable and concession framework, with offers to be received by the end of October this year and the award scheduled for the end of November. The proposed term of the concession agreements was 20 years, extendable by five years.

Several firms took roles on the sale. Aena turned to Cuatrecasas, Gonçalves Pereira to act on the new airports’ management model and the concession process. Madrid office director Francisco Pérez-Crespo and corporate partner Nicolás González-Deleito led the advice on Aena’s incorporation, the drafting of public tender terms, and the evaluation of the suitability of the consortiums bidding.

Roca Junyent advised a consortium led by Abertis Infraestructuras on the bid for El Prat. Raposo Bernardo and Linklaters advised investors and corporations interested in the process, the former in relation to El Prat, the latter with regards to both Barajas and El Prat.

CC brought in a number of teams on the deal. The teams were acting for a financial entity in its bid to become the financial adviser to Aena; representing bidders looking to become concessionaires of the airports; and assisting financial institutions in their potential role as creditors and supporters of the future concessionaires.

Unfortunately, the legal advisers were again thwarted. In mid-October, the government, whose high economic expectations again put off potential applicants, placed the airports’ privatisation on hold for three months.

Garrigues acted for a group of investors, although the firm would not say which. ‘This privatisation is different from the Loterías one, which was an IPO, subject to market conditions,’ explains managing partner Fernando Vives. ‘This [the airports] one is restricted to industrial partners.’

The success of the airports’ privatisation will depend on the appetite of the investors involved. Many are already reluctant to pay the suggested price as they consider it to be too high.

That said, the sale very much depends on what the new government decides, although it is not expected to block the disposition of the airports. Nonetheless, only once it has settled in will it be known whether the transaction is to proceed. Claudi Garcés, co-managing partner of Ventura Garcés & López-Ibor’s Barcelona office, is hopeful that the privatisation process resumes because the firm has clients, including restaurant chains and fashion shops, with interests at Barajas and El Prat. If the privatisation process resumes, Ventura may see a wave of new work come through the door.

 

Reorganise this

While the privatisation market is on ice and the deal markets continue to suffer, several law firms have picked up significant instructions related to the restructuring of parts of Spain’s economy.

The construction, real estate finance, infrastructure, energy, transport and distribution industries have been hit the hardest and therefore required the most attention. However, some believe that virtually every major business group in Spain has reorganised its operations, liabilities and funding.

Carlos Martinez Santiago, a partner at Raposo Bernardo, believes that restructuring is the trend in Spain’s current legal market. His firm has been especially active on restructuring mandates, predominantly for energy, infrastructure and real estate clients.

Garcés tells LB that Ventura predominantly advises clients faced with a number of  scenarios. Recently the firm advised on the restructuring of debt held by a company which has been facing difficulties paying creditors. The firm has also taken a lead role negotiating with banks over new terms and conditions for payment of debt and representing clients filing for bankruptcy, both in the courts and in their negotiations with creditors.

As a result of this shift in the market, some lawyers have had to reinvent themselves. Capital markets specialists are now regulatory experts, while finance partners have turned to restructuring. ‘This is always an easier switch for Spanish lawyers than practitioners from the US or UK, who tend to specialise much earlier on,’ says Julio Veloso, a Madrid-based corporate partner at Broseta Abogados.

‘Most of the work on the Loterias privatisation had already been carried out, but the market conditions were just wrong.’
Luis de Carlos, Uria

Roca Junyent has worked on a number of high-profile restructuring mandates, including those where the assets are still of value and the business operations have been able to continue.

The firm’s Barcelona-based partner Joan Antoni Borràs Abós acted as administrator of real estate company Promociones Habitat in 2010 – which has assets of E1.67bn and liabilities of E2.8bn. Borràs Abós also acted on the administration of food and beverage company Cacaolat in 2011.

Meanwhile, corporate partner Jordi Casas acted for Grup Vemsa in a club deal refinancing with 13 banks, as well as advising Espa Group in a club deal refinancing involving 19 banks and 39 companies, comprising debtors and guarantors.

Garrigues has also pulled in enviable work. In 2011 Madrid-based partners Mónica Martín de Vidales, José Miguel Pinillos and Antonio Fernández led on Amper’s out-of-court restructuring. The team advised on the refinancing of the company’s debt and helped to structure part of it in long-term loans in order to meet the development of the business plan the management had drafted for the coming years.

Stuart Percival, a partner in CC’s Madrid office, landed a plum role advising on the $15bn debt refinancing of global building materials company Cemex and its group. The Magic Circle firm advised the banks, which included BBVA, Banco Santander, BNP Paribas, Citibank, HSBC and The Royal Bank of Scotland. The transaction was a complex multi-bank refinancing involving syndicated loans, bilateral facilities, US private placement notes and other forms of debt governed by a combination of New York, English, Spanish and Mexican law.

‘The greatest challenge is timing,’ says Roca Junyent’s Casas. ‘You need to convince them that it is a no-bluffing game and that if they do not reach agreement on a sound business plan, then the alternative is much worse. There is no Plan B. If the insolvency process takes over, they could lose a great deal more.’

Some members of Spain’s legal community note that a lot of the refinancing/restructuring deals are coming back from 2008. Because clients have debts which require managing, it is of paramount importance that all of the creditor banks are reading from the same page even if their loans are for different amounts and their loan conditions do not match up.

 

Bullseye

The banking industry has also become a favourite target for restructuring. In 2009, the former Spanish government established the Fund for the Orderly Restructuring of the Banking Sector (FROB), a E99bn fund that granted the Banco de España the power to take over a caja de ahorros, or savings bank (see ‘Hitting the target’, LB210, page 56).

Uría Menéndez advised La Caixa (Caixa) on its sophisticated restructuring. This closed in June and was achieved through simultaneous transactions combining a spin-off of most of Caixa’s financial activity-related assets and liabilities, a swap agreement and a merger between Criteria and Microbank to become CaixaBank, a listed bank with no real estate exposure, through which Caixa indirectly conducts its financial activity.

Luis de Carlos and fellow Madrid partner Gabriel Núñez took on a role advising on the creation of Bankia. The transaction saw the May 2011 merger and restructuring of seven regional Spanish savings banks, led by Caja Madrid and Bancaja, thus creating Banco Financiero y de Ahorros, the group’s parent company owned by the saving banks; and subsidiary Bankia. The new bank is free of any non-performing real estate assets.

The firm then advised Bankia on its E3bn IPO. This closed in July, marking the largest IPO in Spain in recent years.

Linklaters partners Iñigo Berricano and Sebastián Albella advised the underwriters, Bank of America Merrill Lynch, Deutsche Bank, J.P. Morgan and UBS, on the IPO. Berricano and Albella also represented the underwriters on the E600m July 2011 IPO of Banca Civica, which had been formed out of four regional savings banks.

Meanwhile, Roca Junyent has also secured a number of banking mandates. Partners Miquel Roca Junyent, Joan Roca Sagarra and Natalia Martí Picó acted for Banco Sabadell in November 2010 on its E816m takeover bid for the entire share capital of Banco Guipuzcoano. The firm also advised CaixaBank on its acquisition of Bankpime’s business. Garrigues Barcelona-based partner Rafael Ortiz Cervelló had previously acted on Bankpime’s restructuring.

 

Domino effect

The reorganisation of Spain’s financial institutions may have generated big-ticket instructions for law firms from the banking sector, but it also had a knock-on effect on the country’s credit market. The lack of stable financing remains a huge obstacle to Spain’s level of M&A activity.

And with market confidence especially low, investors are extremely cautious before entering into any transaction. ‘They need to be absolutely convinced,’ says Broseta’s Veloso. ‘This means that it is very time consuming when bringing any deal to closure.’ But some large M&A deals have squeezed through.

Of the few large M&A deals around, Uría’s Madrid partners, Juan Miguel Goenechea and Javier Illescas, together with New York-based partner Antonio Herrera, advised on one of the largest. The firm was drafted in to act for US-based global bio-therapeutics and bio-technology company Talecris on its €2.8bn sale to listed global healthcare company Grifols in June.

The year started off with the completion of Iberia’s union with British Airways. Garrigues’ Vives and partner Álvaro López-Jorrín acted for Iberia, alongside Norton Rose, on the deal which created a new holding company, International Consolidated Airlines Group (IAG), as owner of both airlines – which continue to operate under their individual brands. The merged entity became Europe’s third largest airline after Lufthansa and one of the world’s largest airline groups. Together with Slaughter and May, Uría partners Juan Francisco Falcón, Redonet and Jesús López Tello advised British Airways.

‘Redundancies have happened in the market. But they are seldom official, as in the Anglo-Saxon world.’
Julio Veloso, Broseta Abogados

On the public M&A side, Linklaters represented Abu Dhabi-based International Petroleum Investment Company (IPIC) on the takeover of Spanish utility CEPSA, which, in addition to pure M&A work, also had a strong antitrust component. The E4bn bid was launched in February 2011 and completed during the course of the year. The deal was led by Linklaters’ Albella, Madrid-based Alejandro Ortiz, Jaime Pérez-Bustamante and Alexander Kolb. Albella believes that this was the most significant public bid of the year in Spain, mainly because it was by far the largest in terms of value and that the target was CEPSA, the second largest oil corporation in Spain after Repsol.

As for the private equity (PE) sector, it enjoyed a period of recovery at the start of 2011, which unfortunately declined after the summer. Prior to the fall off of activity in March, a number of deals made it through.

Roca Junyent’s Casas advised bakery group Panasa on its E300m investment by PE firms Mercapital and Artá Capital. Garrigues’ partners Vives and López-Jorrín acted for Mercapital and Artá on the deal.

Linklaters also saw a piece of the action. The firm advised Permira in what Alejandro Ortiz believes is the PE matter of the year due to its complexity, the number of jurisdictions involved and its impact on the industry. The result of the deal, which saw the E1bn integration of Opodo, eDreams and Go Voyages is likely to create one of the biggest operators in the online travel market. Linklaters advised Permira through the whole process. In July 2010 the PE firm acquired online travel agency eDreams for E300m. The firm then advised Permira and Axa Private Equity on their E500m acquisition of Opodo in February. Alejandro Ortiz and fellow counsel Carmen Burgos took lead roles on the deals.

Uría has also been involved in its fair share of PE deals. Madrid partners Goenechea and González-Espejo acted for CVC Capital Partners on its E900m disposal of Mivisa Envases Metalicos to funds managed by The Blackstone Group and Nmas1. Reportedly the largest PE deal in Spain in 2010, it completed in April 2011.

Recently, Uría’s Madrid partners Christian Hoedl and Alfonso Gutiérrez represented Advent International in the pending acquisition of a minority stake of 49.99% in the Maxam Group, while partner Eduardo Rodríguez-Rovira, also in Madrid, assisted MCH Private Equity on the September acquisition of a majority stockholding in Segur Ibérica.

 

Brits abroad

Despite the current economic conditions, some foreign firms have taken the bold move of entering the Spanish legal market. UK firm Olswang launched its Madrid office in September 2010, after hiring Javier Vasserot, the former Bird & Bird M&A head for Spain, together with its employment leader Daniel Cifuentes and telecommunications head, Blanca Escribano.

Additionally, Olswang recruited infrastructure specialist Miguel Huarte Arregui from Greenberg Traurig as of counsel, and Baker & McKenzie’s banking head Jose-Maria Sanchez. The firm also hired current legal director Álvaro de la Vía from Araoz & Rueda.

Looking ahead, Olswang intends to keep growing organically from its current platform of 30-plus lawyers, but Vasserot does not exclude the possibility of making other lateral hires.

‘Olswang decided some years ago to expand internationally,’ says Vasserot. ‘Spain was one of the chosen jurisdictions, since it is a sophisticated legal market where clients seek advice in Olswang’s key sectors – telecommunications, media and IT.’

Deal highlights for Vasserot include advising Amazon’s LivingSocial in its February acquisition of a majority stake in Spain’s Let’s Bonus, a European social shopping site. Associate Carles Ros of Spanish law firm Rousaud Costas Duran represented the majority selling shareholders, and Garrigues’ partner Ignacio Corbera, who in 2011 moved from Barcelona to head the London office, advised one of the selling minority shareholders.

Vasserot tells LB that Olswang’s arrival has been welcomed by many of the local and international firms. ‘We are grateful for that,’ he says. Yet some were more sceptical. ‘It is always a bit of a surprise each time you hear that another Anglo-Saxon practice is opening in Madrid,’ says Javier Villasante, the international practice head at Cuatrecasas. ‘But having said that, we see these moves as a sign of the international players’ positive view of the Spanish legal market.’

Others find it both interesting and refreshing that Olswang chose to open in Spain. ‘When I talk to UK law firms about their expansion plans they mostly cite the Far East as a likely target,’ says Rivero’s Gustafson. ‘Most of them have written off continental Europe for the time being.’

At Araoz & Rueda, partner Clifford Hendel believes that the only surprising thing is that more international firms have not come to Spain. ‘The market is important in itself and as a bridge to Latin America,’ he says. ‘From a longer term perspective, a short or medium-term crisis really should not matter. Indeed, it may provide opportunities that did not exist in buoyant times.’

Another recent entrant to the Madrid legal market is Irwin Mitchell Abogados, which in Spain has traditionally focused on its Malaga base. In 2010, the UK firm acquired Madrid practice L&E Solución Legal and Empresarial, including data protection specialist Javier González Espadas. Using Madrid to develop its corporate law presence in Spain, the firm has also set itself the agenda of becoming a reference point for the Spanish commercial litigation market.

Cut to the third quarter of 2011 and the Madrid office has successfully tapped into commercial litigation, outsourcing and data protection. José Maria de Lorenzo, Irwin Mitchell’s Spanish managing partner, tells LB that the greatest challenge to opening the Madrid office was finding its place locally and differentiating itself from the large domestic and international firms. ‘After just one year, we can honestly say that we have heavily penetrated the Spanish market,’ he says.

Spain now has several globally active multinationals (see box, ‘Go forth and conquer’, page 74). In addition to Telefónica – one of the largest private telecommunications companies in the world – a number of Spanish construction companies, such as FCC, ACS, Acciona and Ferrovial, have morphed in recent years into global entities that are active in airport operations, transportation and energy projects. Therefore, a local presence could help generate instructions for an international law firm.

 

Join together

Notwithstanding the positive signals given off by new entrants, many believe that because of Spain’s economic volatility, it is just a matter of time before portions of the legal market start to mirror the banking sector and consolidate. ‘Consolidation within the legal market is bound to happen over the next few months,’ says Rivero’s Gustafson, ‘as bigger fish look for opportunities and smaller practices continue to suffer.’

Although no major mergers took place in 2011, such a trend has already begun in the mid-market. The most notable deal is Madrid’s Dutilh teaming up with Barcelona’s Vialegis to form Vialegis Dutilh Abogados in 2010. In early 2009, litigation boutique Bufete Ramón Hermosilla and corporate firm Gutiérrez de la Roza merged to form Ramón Hermosilla & Gutiérrez de la Roza.

Broseta’s Veloso tells LB that although opportunities may be up for grabs, firms should choose with caution. ‘Otherwise, they could find themselves in a position in which problems have simply been delayed, and that may come back to haunt them,’ he says.

 

Another year

With Spain’s economic situation still riddled with uncertainty, most market commentators expect 2012 to be an even tougher year. Assumptions are that significant numbers of Spanish businesses will enter insolvency proceedings, and second and third rounds of restructuring for some companies are foreseeable. Rafael Molina, a Madrid-based partner at Linklaters, anticipates that restructuring and insolvency work will produce a significant stream of work for the next two or three years.

Notwithstanding the dramatic reduction of foreign investment into Spain, many market observers do believe that there are opportunities for those looking to invest in the country. The energy sector has proved to be more resilient for M&A activity in Spain, as companies are selling assets to increase liquidity in a tough business climate. Moreover, a number of companies and their assets are in good shape. And because it was inevitable that prices came down, especially in the real estate industry, the drop in prices could trigger an increase of foreign investments into this sector.

At Raposo Bernardo, Santiago has already noticed clients emerging from countries where they have easy access to credit, and are looking for investment opportunities with a view to entering the Spanish market. Raposo Bernardo recently acted on the acquisition of hotels and office buildings for UK investment funds and Russian entrepreneurs, and assisted with the purchase of solar plants and wind farms for a Canadian investment fund; while for company clients, the firm has acted on deals in the mining, distribution, logistics and transport sectors.

It is unclear whether Spain’s legal advisers will see significant levels of new deals in 2012. Sounding a note of caution, Uría’s de Carlos says: ‘Spain’s situation clearly depends on the state of the global markets. Things will need to get better Europe-wide, and in the US, before Spain recovers.’ 
julian.matteucci@legalease.co.uk