Lower capital costs and increased access to financing are enabling investors to find new avenues for growth in the Spanish market. With immediate potential in transportation, energy, and sports and leisure, and AI promising future opportunities, there is significant momentum.
We sat down with Alberto de Castro, founding partner of WindRose, a financial advisory firm specializing in valuation, M&A and modeling services, to discuss his career in financial services and the industries that are primed for investment in Spain.
Q: Tell me a little about your personal and professional background, and how you got to where you are today?
I studied engineering in telecommunications, yet quickly pivoted to Corporate Finance in different companies (Kroll, Deloitte, BDO), in Spain and Mexico, while I studied Business Administration and Economics.
Alejandro Meléndez and I had worked together on several projects when we saw the opportunity to establish WindRose. We share a vision on how to differentiate ourselves from the market, with a straight and closer approach.
We meet the Valuation and M&A needs of mid- and low-mid-market companies, and we are already working with some of Spain’s key players.
Q: In the Spanish context, which sectors do you see as promising for investments in the coming years and why?
The lower capital costs and broader access to financing will surely impact the market in several ways. Though there will still be interest in consolidating fragmented sectors like Healthcare, with the Social Security overcrowded and a growing demand for private consultations in all specialties, the focus will shift more towards capital-intensive industries, like Transportation, Energy, Sports and Leisure.
These are already attracting the attention of investors, with IT/Tech and related industries standing out in particular. We can’t ignore the AI revolution which is changing the world. There are companies with huge potential and, what the next stages will bring, is of great interest for a lot of players.
M&A professionals faced a challenging market in 2023, with both the volume and value of deals falling year-on-year. What impact did this have on salaries and bonuses?
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“Life can only be understood backwards, but it must be lived forwards.”
The approach to life suggested by the Danish theologian and philosopher Søren Kierkegaard could, in some way, also be adopted in trying to interpret the evolution and the dynamics of the VC market.
We are far from the figures that characterized VC funding in 2021 and actually 2023 has shown a significant decline in VC commitments, with nearly 70% fewer investments compared to the average of the previous decade, as indicated by a comprehensive analysis of over 10,000 limited partner (LP) commitments to VC in Europe and the U.S. from PitchBook Data.
High-interest rates, uncertainty about the economy due to the geopolitical situation, in particular the Russia-Ukraine war, inflation spiking, and the lingering aftermath of bank failures are among the reasons for this slowdown. These factors have had a deep impact on society, the economy in general, and, obviously, the startup ecosystem too.
As far as Spain is concerned, especially in the last years, the startup ecosystem has been particularly active, attracting significant investment and managing to remain stable even in critical periods such as the aftermath of the COVID-19 pandemic.
In January 2013, in Spain the Law for the Promotion of the Startup Ecosystem came into effect, encouraging the creation of startups in the country and contributing to a vibrant and robust startup scene.
Homegrown unicorns such as Factorial, Domestika, and TravelPerk, have driven the country to rank 6th in Europe and 16th in the world for total investment raised in 2022.
What does Q4 2023 have in store for the startups’ ecosystem in Spain?
Miguel Arias, General Partner at K Fund and the leader of Leadwind, has shared his views about the Spanish VC scenario. Miguel is positively convinced that Q4 will bring a resurgence of VC in Spain..
The resurgence of VC in Q4
How corporations and tech giants are acquiring startups
A few days ago, I was writing about the possible evolution of financing rounds in Q4 2023, but there’s an interesting effect I didn’t mention. It’s highly possible that we will witness a resurgence of M&As: the acquisition of startups by corporations and tech giants.
Companies with healthy balance sheets and hundreds of millions of dollars in cash will have a significant strategic card to play in the coming months by acquiring startups. Coinciding with the wave of fundraising efforts that will be attempted starting in September, many startups will have no choice but to seek early exits, and corporations will be able to find interesting technologies and strong teams at reasonable costs.
Although it won’t be imaginable to engage in the multiples arbitrage as in past years –where it was possible to buy startup revenues at multiples lower than those of publicly traded companies – the increase in Nasdaq valuations in 2023 (+40%) and, above all, the fact that many investors will want to provide some liquidity to LPs who are a bit more stressed than usual, will shift the negotiation power into the hands of buyers.
The case of scale-ups
Likewise, scale-ups that have raised tens of millions and are encountering some difficulty in maintaining annual growth rates of 2-3x can use part of that cash, or their shares at the last valuation round (effectively using favorable multiples arbitrage) to acquire struggling companies or those without access to funding.
They can also use that cash to make stronger bets on marketing and sales (as long as the business’s unit economics support it and with an eye on profitability) and thus gain market share at a time when many competitors will have to make adjustments. Capital has once again become a strong competitive advantage.
Market maturity
In Spain, the startup ecosystem has matured by leaps and bounds in the last decade, and Spanish startups, known for their creativity and adaptability, have become attractive targets for large companies and international funds. Acquisitions in the Spanish market offer an entry into a market of not only more than 40 million consumers but also the possibility of serving as a bridge to Latin America.
The return of summer promises to be exciting.
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