Spain – Gaining momentum

Legal trends

The trend in 2024 was for more bilateral deals or bid processes involving fewer bidders – this even resulted in deals becoming bilateral processes very early in the process to close out negotiations rapidly due to lack of appetite. This hybrid approach to the sales process is something we expect to continue at least until M&A deal activity gains more momentum, hopefully by mid-2025.

M&A processes have continued to lengthen. This is due to a number of factors, including buyers' requests for more extensive due diligence, the need to bridge valuation gaps between sellers' and purchasers' expectations (including by using deferred contingent payments or earn-out mechanisms based on future growth), securing bespoke insurance solutions for identified risks, buyers' difficulties in obtaining financing and regulatory challenges. All of these have led to a farewell to the fast-paced auctions that were a feature of M&A deals in the past.

As for the regulatory challenges mentioned above, the Spanish National Markets and Competition Commission (the CNMC) has shown recent interest in closely monitoring the impact of ancillary restraints (eg, non-compete, non-solicitation and confidentiality clauses as well as certain supply and purchase agreements) in the context of M&A transactions. The CNMC has also shown increased appetite for investigating gun-jumping practices and has imposed fines in excess of €1 million in a number of recent cases. Alongside merger control and foreign direct investment rules, players must now consider the FSR regime even when doing deals within national borders. FSR regulations impose an obligation to notify to the European Commission of the acquisition of companies with turnover in the EU of at least €500 million if non-EU governments have made financial contributions to the deal parties. This has also had a direct impact on deal timetables.

Due to the parties’ difficulties in seeking necessary financing, besides sellers offering some flexibility to secure deals through vendor notes and purchase price deferred payments, JVs have gained traction in Spain in recent years to become a significant tool in companies’ strategies as a means of originating funding or sharing projects' financial risks among the JV partners. This has been especially valuable in the energy sector, where projects are capex intensive or may have large investment needs.

JV partners' focus is on ensuring that the JV is well designed, thus enhancing their ability to achieve greater value. The following are among the common features of well-designed JVs: 

• Alignment on strategic objectives and business plan (including investment and return expectations).
• A clear governance structure, with agreement on key governance principles (such as operational decision-making, parent company oversight, leadership structure, balance of roles and accountability, compliance, risk management, and administration). 
• Alignment on exit mechanisms and scenarios (eg, waterfall distributions, preferred returns, etc).

Outlook for 2025

We are hopeful that M&A activity will continue to pick up in Spain in 2025 gathering momentum on the back of recent growth in 2024, particularly as M&A players adapt to market conditions, valuation gaps are bridged and expectations are aligned, ultimately pushing M&A deals across the line. 

We are also confident that private equity players will need to invest dry powder, realise investments to reduce the ever-growing backlog of assets that remain under ownership beyond the hold period and that several sale processes that were suspended or postponed in 2024 will be in the market in the coming year. Elsewhere, we are confident that JVs will continue their rise in prominence in Spain in 2025.