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Álvaro Rubio

By Álvaro Rubio
Country Head, Spain

Álvaro's profile

Developing management advisory services in the Spanish market

04 October 2021

Álvaro Rubio shares his experience of developing management advisory services for Liberty in Spain.

During my time as an investment banker advising on private equity deals I got involved in a number of situations in which CEOs asked me for help to understand concepts such as sweet equity, ratchets, envy, hurdles, etc. CEOs seemed to have the feeling to be missing something. Everybody was making money in the deal with lots of advisors on the sell and buy side, and sellers and buyers deciding their future - saying they are very important for the company but, after all, there was nobody really thinking on the management team interests except themselves.

This situation is still very common in Spain nowadays where CEOs (in the best of worlds, because many times they don’t have any advice) trust M&A sell side advisors to help them on the negotiation of their incentive packages. Obviously, this is not the ideal situation, firstly because M&A advisors are not specialists and secondly because the conflict of interests with private equity firms on the other side of the negotiation (recurring client with high fees) is evident.

A few years after I left my position as an M&A advisor, management incentive plans structures and economic terms continue to be unknown for most of the management teams in Spain. For that reason, when I heard that in the UK and France management advice was quite common for both large and mid-market private equity deals I decided to explore the possibility to develop this activity in Spain. Coincidentally, Liberty crossed my path and I started my journey trying to persuade CEOs that it is crucial for them to use a specialist advisor to negotiate and structure their MIP.

It is true, that on paper, the task of developing Liberty’s business in Spain seemed to be challenging but not impossible.  There were a lot of positive factors helping, including an increasing number of private equity deals (both primary and secondary), management teams becoming financially more aware of the opportunity to make money in such a life changing way- that only appears one or two times in their professional life -, managers don’t pay directly for this service (it is part of the transaction costs) and the lack of relevant specialist competition. In addition to all of this, the most important part of the equation: I was backed by Liberty, the best specialist firm in Europe in this field with an impressive track record of deals advising only management teams and amazing knowledge of incentive structures and economic terms offered by most of private equity houses in Europe.

However, it did not take a lot of time to realise that the task was going to be much complicated than expected. The education process required for Managers, Private Equity houses and M&A advisers in the Spanish market was the key factor – demonstrating that high quality management advice would be beneficial to all parties in a sale process not just to the management team benefitting directly from the advice.  That said, it was not difficult for me to contact and have a number of meetings with CEOs and CFOs of companies backed by financial sponsors.

The good response from management teams I approached made me optimistic that deals would come sooner rather than later. However time passed and management teams were not coming forward as quickly as I hoped they would. Feedback from management teams was really good after meeting them. But, what’s going on?

From my personal experience the main issues where:

  • some managers didn’t really understand our role or the importance for them of negotiating a good package (I found this in primary deals),
  • some CEOs (the minority) think they can negotiate and structure the MIP by themselves without professional help or only with the help of their life-long tax advisor 
  • some teams (the majority I have to say) were reluctant to propose our participation in the deal to the seller or the buyer private equity house because they thought it could negatively impact their future in the company.

The latest was certainly the highest barrier to entry I found during the first 24 months developing management advisory services in Spain.

Although it can seem surprising, in Spain there is still a lack of knowledge about private equity funds and how they work. Management teams are still not aware of how important they are in private equity transactions. I always have in mind these words that I was told by one of my bosses, highly experienced in private equity deals,  

For financial sponsors it is more crucial to invest in a good jockey than in a good racehorse. A good jockey can make an ordinary racehorse win the race however a bad jockey can make the best racehorse lose it”.

Nowadays there are many private equity firms operating in Spain (small, medium, large, national, international, generalist, specialised) sitting on a mountain of dry powder. However, the number of outstanding companies to invest in is scarce and great management teams are “hidden gems”.

But this environment it is not so different to the one my colleagues in London had to face when they founded Liberty in 2006 and since then we have advised more than 400 management teams in deals with more than 130 private equity houses. It is clear that the Spanish private equity industry has not the size and is not so developed as the UK but we are committed to make our contribution to place Spanish management teams on the same level as their counterparts in other countries.

I would like to conclude saying that I cannot hide the fact that a couple of times (one of them during the worst moments of the Covid pandemic) I seriously thought to give up and return to my previous life as M&A advisor. But finally, perseverance and hard work gave results. We have been involved in three deals in Spain during the last twelve months, two of them among the highest transactions value deals and, that is not all, we are now working in lots of mid market deals and are contacted by many other managers interested in our service. We are very proud to have supported these management teams and very happy to have obtained an excellent outcome for them and are keen to continue doing it with other management teams in the coming years both in large and mid-market deals.

I don’t want to miss the opportunity to thank all the people who always trusted in me (family, friends, colleagues) and specially Dan and Mick from Liberty. Without their support during the bad times the second part of my experience developing this service in Spain would not have been possible.