Spain search fund market in 2020

In the last three years Spain has seen a significant growth in the number of search funds, becoming the single most active European country and the third largest search fund market worldwide after the US and Mexico.

In 2020 we finally witnessed the first exit of a search fund acquired company, a key milestone for the SF community. Repli, the plastics packaging company acquired by Spanish pioneer Ariol Capital in 2014, was successfully sold to a strategic buyer, generating a solid outcome for its shareholders. Kudos to Marc Bartomeus and the entire Ariol team!

On the acquisitions front, 2020 saw 3 new search fund deals in the online education (ENEB), plastics manufacturing (Plásticos Arias) and contractor management software markets (CTAIMA, one of our portfolio investments). This makes for a total of 11 acquisitions to date.* In addition, two Spanish entrepreneurs acquired a fleet management software company based in the Netherlands (CarPro Systems, also an Istria portfolio company).

In terms of new funds raised, 5 search funds were launched in 2020 (Istria is an investor in 2 of them), bringing up to 15 the total number of active funds looking for a business to buy. Also, one search fund was terminated without closing an acquisition, the second time this has happened in Spain.

The number of local investors has also continued to grow, with several new faces joining the investor community in 2020. The existence of a strong community of local serial investors is an important factor that continues to make experienced US and international investors more comfortable investing in Spain.

Finally, from an academic perspective, IESE continued to be the reference for so-called "international" search funds (those outside of the US & Canada), with the organization of the international SF conference (this year in a webinar format) and the release of the latest version of its international SF study. 

Still one of the most attractive markets to be a searcher

Prospective searchers often ask us if Spain continues to be an attractive market to launch a search fund. There is some fear that it has somehow become a saturated market now that there are 15 to 20 search funds actively looking for a company at any given time.

When we look at the numbers, however, we can see that there is still plenty of room for growth. There are approximately 1,500 to 2,000 potential targets in Spain that meet the broad search fund investment criteria. That's a lot of companies for (still) a relatively small number of prospective buyers. This is particularly true if we compare it with the traditional private equity market, where a much smaller universe of potential targets is chased by a larger number of PE funds.

There are two important aspects of the Spanish SME market that are often overlooked. First, most companies in the €1-3m EBITDA range are still founder-owned businesses, increasing significantly the proportion of so-called "natural sellers" of high quality niche services businesses. Second, the level of penetration of both professional buyers and intermediaries in this micro-buyout space is much lower than in other European countries. This combination of a higher proportion of suitable targets and less competition from other buyers, together with other factors such as the availability of cheap financing and some favorable macro and fiscal trends, continues to make Spain one of the most attractive markets in Europe, even today under the difficult Covid-19 environment.

There is undoubtedly more competition nowadays than there was some years ago when there were only one or two entrepreneurs searching for companies, but that is an inevitable consequence of the development of the search fund model in Spain. Yet, the chances of two search fund entrepreneurs bumping into each other are still relative low, especially in proprietary sourced deals.

(*) Repli (2014), Lodisna (2015), Cermer (2016), Mapex (2018), Lanaccess (2018), Frenkit (2019) Logiscenter (2019), Vozitel (2019), ENEB (2020), Plásticos Arias (2020), CTAIMA (2020).