Joana Andrade Correia: “Portugal is still considered a good ecosystem for the development of new technology projects”
Raposo Bernardo's co-head of corporate law and M&A discusses corporate M&A in Portugal.
LL: What sort of opportunities has the pandemic created in corporate M&A in Portugal?
Andrade: The pandemic boosted the M&A market in Portugal. Many companies have suffered important losses during the pandemic and are in urgent need of funding. This situation presents many interesting business opportunities for investors with availability of financial resources.
The role of private equity will be an important one in the future and there is still an important space for growth and consolidation.
On the other hand, Portugal is still considered a good ecosystem for the development of new technology projects and this, associated to the quality of life that characterizes the country, continues to attract an increasing number of entrepreneurs to develop their projects in this country.
Acquiring assets or companies for a fair price and investing in its restructuring in order to repositioning it in the market, is also a type of operation we will most likely see in the years to come.
Aligned with this trend, we have also the rebounding of the economy which is having a positive impact in the legal market and will most certainly be boosted by the investment and incentives programs put in place by the Portuguese governments with resource to European Union funding and that will support investments in areas such as climate transition, digital economy and social and territorial cohesion. This investment plan to be achieved within the coming years will have a positive impact in the infrastructures market, where structural projects have been announced such as the development of the railway network or the development of Lisbon and Oporto metro networks.
One cannot forget that Portugal has also an ambitious program for renewable energies and new large scale PV plants are being projected and installed.
Portuguese law firms are recovering their activity to pre-COVID levels and are being more frequently asked to cooperate with firms from other jurisdictions; a model that proved to be so positive in the past, that is being resumed and will most certainly be enhanced. In our case, due to our strong connection with the African markets, we have been playing as cooperation platforms for those seeking for legal support in Portuguese Speaking African Countries such as Angola, Cape Verde or Mozambique.
What sort of advantages does your firm enjoy as a Portuguese law firm with an office in Madrid?
The advantages of having offices both in Portugal and Spain are enormous pertaining cross-selling services. We feel the same environment in the African Lusophone countries where we have a strong practice (Cabo Verde, Angola, Mozambique, São Tomé and Guinea Bissau). We defend that a strong cross-selling service helps clients feel understood across their businesses and activity and builds loyalty. We can deal with a Portuguese client’s project based in Spain either in Lisbon or in Madrid, with the same level of quality and knowledge which is very appreciated by our clients. It also allows to offer to our client the opportunity to benefit of several services that permits clients to save money considering the preferential fees arrangements that we are able to propose. The feedback from our clients couldn’t be better in this regard which makes us proud.
Combined with all this, being in Madrid we are close to the fantastic venture capital and private equity market that continues to show great dynamism, with several large deals taking place, facing a great time in terms of investment value. Spain still maintains its attractiveness for international investors and a strong reactivation of M&A and, therefore, of divestments.
To what extent are high valuations for corporate acquisition targets becoming an issue?
In Portugal it is not yet a real issue, but this trend is already beginning to be felt, also considering ESG issues and concerns, not so much because of the capital and compliance requirements that increasingly value companies but because of the high demand for corporate acquisition target that put a lot of pressure on companies that automatically increase their valuations. It is undeniable that companies with high ESG scores often possess strong balance sheets and good management that have impact in its credit quality and credibility.
“It is inevitable that ESG issues will become increasingly important in financial markets”
How are ESG issues starting to affect target valuations in Portugal?
ESG issues haven´t yet a strong impact in target valuations in Portugal but it is a trend that is starting to develop in our M&A market.
Environmental, social and governance (ESG) investing has undeniably begun its ascent to the mainstream. This trend not only suggests investors are more readily prepared to pursue a responsible agenda, but also that they believe it doesn’t have to come at the expense of returns. In fact, there is compelling evidence showing investors can invest for a better world and still make money. Like I have already mentioned previously, companies with high ESG scores often boast strong balance sheets, decent growth profiles and good management.
As the global economy recovers from the coronavirus pandemic, it is inevitable that ESG issues will become increasingly important in financial markets in coming years due to the convergence of increased disclosure requirements, decarbonization policies and the effects of government stimulus efforts. Even because, the increasing interaction of these issues will amplify their impact on credit quality, while the positive credit implications of being well-positioned to adapt to ESG trends will become more apparent. In Portugal, you have already many companies who pursue that transparency and concerns which is reflected in their valuations and credibility. But the majority of the Portuguese companies that still haven’t ESG in place aren’t yet harmed for that. But this is changing, and I am convinced that it will happen faster that one would expect. A growing disclosure requirements and environment of sustainability standards that reveals financial flows to greater scrutiny and oversight, is expected to start having more influence on investment decisions at all levels, from banks to asset managers.
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