Spain's M&A market entered 2023 with heightened selectivity following the impact of the ECB's interest rate hikes that began in 2022. Deal financing became substantially more expensive, shifting market focus toward sectors with recurring revenues and valuations more resilient to macroeconomic turbulence.
Most Active Sectors
Technology and software-as-a-service (SaaS) maintained appeal for private equity investors, although multiples moderated from the 2021 peaks. Business models with subscription revenues, high customer retention (NRR above 110%) and demonstrated organic growth were the most sought after. Vertical software — specialised solutions for specific sectors such as real estate, hospitality or construction — proved particularly attractive due to its lower exposure to horizontal platform competition.
Healthcare — clinics, care homes and health technology — confirmed its status as a value haven. Chains of dental clinics, optical stores and care-dependency services continued to be actively consolidated by private equity funds. In health technology, assets with long-term public contracts and regulatory entry barriers commanded a premium.
Renewable energy attracted institutional capital flows tied to the energy transition and the Recovery Plan objectives. Projects with capacity market agreements or long-term PPAs signed with major corporations maintained their appeal even with higher discount rates, thanks to the stability of their cash flows. Spain’s onshore solar photovoltaic and wind generation markets continued to be a preferred destination for international capital.
Impact of Interest Rates on Valuations
The cost of capital rose across the board. Deals with multiples above 8x EBITDA declined in number, while private equity sought assets with low net debt and cash flow visibility. Vendor due diligence gained prominence as a tool to accelerate processes and build buyer confidence.
The rate increase had a direct impact on leveraged financing structures. With Euribor exceeding 4% for much of 2023, private equity funds had to revise their return models, reduce target leverage levels (loan-to-value) and be more selective in target sectors and assets. This caused many deals that would have closed in 2021-2022 to fail to reach price agreement in 2023, widening the buyer-seller gap in mid-market segments.
The Role of Due Diligence in a More Demanding Environment
With more cautious buyers and longer processes, the quality of the due diligence process became a key differentiator. Buyers demanded greater depth of analysis in areas such as quality of earnings, the state of contracts with key customers and suppliers, the sustainability of the growth model, and tax and employment contingencies. Transactions with strong documentation and well-structured sale processes closed faster and with less price erosion.
ESG due diligence also gained weight, driven by the requirements of private equity funds with responsible investment (ESG investing) commitments. Assets with high carbon footprints, labour disputes or corporate governance deficiencies saw increased price penalties.
Outlook for the Year
Forecasts pointed to a gradual recovery in activity during the second half of 2023 as the market adjusted price expectations between buyers and sellers. Private equity funds with accumulated dry powder were under pressure to deploy capital.
Small and mid-cap segments (companies with EBITDA between €2 million and €10 million) showed greater resilience than large-cap deals, partly because they rely less on syndicated leveraged financing, and partly because strategic buyers — including family offices and industrial groups — remained active. At BMC we observed a sustained flow of generational succession transactions in family-owned businesses, a particularly active segment of Spain’s mid-market M&A landscape.
Structuring Transactions in a High-Rate Environment
With debt more expensive, deal structuring became more creative in 2023. Earn-out mechanisms — where part of the purchase price is contingent on post-closing performance — gained traction as a way to bridge valuation gaps between buyers and sellers. Seller financing also made a partial return in mid-market deals, with vendors agreeing to leave a portion of the consideration outstanding as a vendor loan at negotiated rates.
Buyers scrutinised working capital requirements and normalised EBITDA calculations more carefully than in previous years, making pre-deal financial modelling and quality-of-earnings analysis critical preparation steps for sellers. Companies entering a sale process with clean, audited accounts and a clear bridge from reported to normalised EBITDA closed deals significantly faster and at better prices.
What This Means for Business Owners Considering a Sale
For business owners thinking about a future exit, the 2023 environment delivered a clear message: preparation matters more than market timing. Companies that had invested in professionalising their management teams, cleaning up their balance sheets, resolving pending litigation and implementing basic ESG reporting were in a much stronger position than those that initiated a sale process reactively. Beginning exit preparation two to three years before a target transaction date remains the most reliable way to maximise valuation and minimise deal risk.
At BMC we advise on all phases of the M&A process, from initial valuation to close. See our mergers and acquisitions services.
