PORTUGAL

LAW & PRACTICE: p.407Contributed by Serra Lopes, Cortes Martins & Associados

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TRENDS & DEVELOPMENTS: p.3Contributed by Cuatrecasas, Gonçalves Pereira

The ‘Trends & Developments’ sections give an overview of current trends and developments in local legal markets. Leading lawyers ana-lyse particular trends or provide a broader discussion of key develop-ments in the jurisdiction.

DOING BUSINESS IN PORTUGAL: p.422

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Contributed by Cuatrecasas, Gonçalves Pereira

Corporate M&A

2017

PORTUGAL

TRENDS & DEVELOPMENTS: p.3Contributed by Cuatrecasas, Gonçalves Pereira

The ‘Trends & Developments’ sections give an overview of current trends and developments in local legal markets. Leading lawyers ana-lyse particular trends or provide a broader discussion of key develop-ments in the jurisdiction.

Trends & developmenTs porTUGAlContributed by Cuatrecasas, Gonçalves Pereira Authors: José Diogo Horta Osório, Francisco Santos Costa

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Trends & DevelopmentsContributed by Cuatrecasas, Gonçalves Pereira

Cuatrecasas, Gonçalves pereira is a leading law firm in Spain and Portugal. With over 950 lawyers, it represents some of the largest listed Spanish and Portuguese compa-nies, and advises on strategic transactions and foreign in-vestments in the Iberian market. Headquartered in Barce-lona, Madrid and Lisbon, the firm has 24 offices in cities in Europe, America, Asia and Africa, where it advises on

Spanish, Portuguese, Moroccan and European Union law. It has relationships and experience with the best law firms worldwide, so it can meet clients’ legal needs anywhere. Cuatrecasas, Gonçalves Pereira’s experience, business focus and their lawyers’ top quality skills and constant training, form the foundation of its excellent legal advisory services.

AuthorsJosé diogo Horta osório mainly advises on mergers and acquisitions in the energy, infrastructures and transport sectors, as well as on leveraged buyouts, private equity, corporate reorganisations, financial transactions, the structuring of invest-

ments in real estate assets and project finance. He is the co-ordinator of the corporate and commercial practice of Cuatrecasas, Gonçalves Pereira in Portugal.

Francisco santos Costa has extensive experience in advising clients in cross-border M&A deals (leveraged and non-leveraged) and corporate restructur-ing mandates in a wide range of sectors. Francisco has recently been involved in

transactions in the infrastructure and renewable energy sectors (especially in hydro, hospitals, motorways, wind and solar plants). His clients include major companies in the energy sector, private equity funds and other financial sponsors, infrastructure investment funds and industrial partners.

General overview of the economyPortugal’s economy continued to improve for the most part of 2015 and in the first months of 2016 after the success-ful conclusion of the international bailout programme in May 2014. This has been achieved as a result of a mix of accommodative macroeconomic conditions (a weak euro, low oil prices and improving financing conditions), a strong domestic demand amid rising consumer confidence and a sustained increase of exports.

GDP was initially projected to grow 1.8% in 2016 as esti-mated by the government, following a very tough period in the aftermath of the financial crisis with two major con-tractions (2009 and 2011-2013). This projection has now been questioned by international organisations such as the EC, OCDE and the IMF, which forecasted GDP increase to be slightly below the government’s figures. The estimated growth should therefore be largely driven by strong internal demand resulting from a consumption-friendly 2016 budget and an acceleration of the exports fostered by an expected pick-up in Portugal’s main export markets, especially Eu-rope’s core trading partners.

General tailwinds, the ongoing corporate deleveraging pres-sures, the recent weaker external economic environment and the low investment figures, largely driven by the excesses of public and private debt and the pervasive weakness of the banking sector, could limit the growth potential of the economy in the near future.

recent m&A trendsThe M&A activity has been very robust across 2015 and 2016, both in terms of number of deals and in volume. The first wave of major transactions started earlier in 2014 as a result of the privatisation programme negotiated with the representatives of the country’s creditors (EC, IMF and Eu-ropean Central Bank) and included the divestment of several large stakes held by the State in different economic sectors (eg EDP – Energias de Portugal, the largest electric utility company, ANA – Aeroportos de Portugal, concessionaire for the operation of eight airports in Portugal, CTT – Correios de Portugal, engaged in the postal services sector, EGF, the leading wastewater and solid urban waste treatment compa-ny, and TAP – the Portuguese flagship airline company). This first round of M&A deals coming from the implementation of the privatisation programme, agreed with the country’s creditors, brought significant overseas investments, especial-

porTUGAl Trends & developmenTsContributed by Cuatrecasas, Gonçalves Pereira Authors: José Diogo Horta Osório, Francisco Santos Costa

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ly from China (China Three Gorges, State Grid and Fosun) and France (Vinci Group).

Concurrently, the aftermath of the break-up of former Banco Espírito Santo group also brought a significant number of deals to the market, largely driven by Novo Banco’s need to raise capital requirements through the disposal of non-core assets and businesses.

A second round of major deals took place throughout 2015 and beyond and brought the attention of large international private equity funds, pension funds and institutional inves-tors alike, covering all economic sectors across the spectrum with a main focus on energy, real estate, tourism and finan-cial services. This provides enough evidence that confidence has returned to the market and sophisticated investors are now willing to look for opportunities in a country that offers a more stable environment after having endured a painful adjustment during the recession years. Portugal should also benefit from the ongoing shift from emerging markets that has been taking place recently.

We expect a continuation of this trend throughout the re-mainder of 2016, with increasing activity in the energy, real estate and banking sectors, the latter fostered by the relaunch of Novo Banco’s sale process (which should get widespread attention from international players) and the ongoing con-solidation in the sector. Spain’s largest commercial banks are rumoured to be taking advantage of this consolidation in order to expand their operations in Portugal.

Amid this intensive deal flow encompassing all core sec-tors of the economy, we still expect a strong return of the Distressed M&A in the months ahead underpinned by the continuous deleveraging process of Portuguese banks’ assets, which are facing increasing pressure to boost their capital ratios and divest from non-core and unprofitable businesses.

Key sectorsAs further described above, the bulk of the M&A work across 2015 and for the first months of 2016 took place in the energy, real estate, and banking and financial services sectors.

The renewable energy sector has been in high gear with a couple of sizeable deals recently closed, encompassing the transfer of a substantial amount of the country’s wind-in-stalled capacity to foreign players (First State Investments and Hong Kong group Cheung Kong Infrastructure). Nearly half of the country’s electricity consumption is now gener-ated from renewable sources, mostly coming from hydro and wind power. With the Iberian energy market already liberalised and massive investments expected to be made to improve grid connections across the EU, we still expect this sector to do well in the years ahead and continue to attract international players looking to diversify their portfolios into the renewables sector.

Commercial real estate should also continue to be in the loop of investors after 2015 having been the best year ever in terms of deal value, bolstered by the golden visa programme and the tax exemption programme for non-resident senior citizens. Despite a backdrop of increasing valuations, Lisbon still has more competitive yields than other major European cities, which should support a continuation of the inflow of investments throughout 2016.

On the other hand, infrastructure assets have also attracted foreign investors’ attention, notably the likes of infrastruc-ture and private equity funds who are looking for transac-tions with higher yields and manageable risks, taking ad-vantage of highly leveraged national players who are keen to dispose of their non-core assets and raise cash to reduce the debt burden in their balance sheets.

Moreover, there are a large number of companies which have extensive export experience, including an international foot-print, though many of them, especially SMEs, have limited investment capital and are faced with tight restrictions in access to credit markets. These companies provide several attractiveness-interesting factors to overseas investors, amid which is an accelerated access to fast-growing markets such as the Lusophone countries (Brazil, Angola and Mozam-bique). We expect international players to continue to look to these companies as potential target opportunities in the next few years.

Key playersAfter the first round of M&A deals that started in the re-cession years which was mostly driven by the privatisation programme, recent trends and developments in the M&A sector show that key players in the Portuguese market are essentially large institutional private equity funds and pen-sion funds, which, as outlined, are looking for long-term in-vestment opportunities with higher yields and stable returns based on the stability the country has managed to achieve after the end of the economic downturn. Among these funds are Springwater (acquisition of tour operators Geostar and ES Viagens), First State Investments (acquisition of Finerge,

Cuatrecasas, Gonçalves pereiraPraça Marquês de Pombal, 2 Lisbon Portugal 1250-160

Tel: +351 21 355 3800Fax: +351 21 353 2362Email: cuatrecasasportugal@cuatrecasas.comWeb: http://www.cuatrecasas.com

Trends & developmenTs porTUGAlContributed by Cuatrecasas, Gonçalves Pereira Authors: José Diogo Horta Osório, Francisco Santos Costa

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a leading company in the wind generation, from Enel Green Power) and Lone Star (acquisition of Gaervecat). Transac-tions involving institutional players included, among others, Minor Hotel Group (acquisition of Tivoli Hotels & Resorts operating in the tourism sector), Bankinter (acquisition of Barclays Portugal retail’s business), Santandertotta (acquisi-tion of part of Banif ’s commercial banking business) and the consortium formed by Azul and Barraqueiro Group for the acquisition of a large shareholding in TAP.