The Mergers & Acquisitions Review: Spain
Overview of M&A activity
The overview of M&A activity in Spain in 2019 and the first half of 2020 must clearly be divided into two, very distinct periods, with the start of the covid-19 pandemic and lockdown in March 2020 as the turning point.
Pre-covid, 2019 and the first two month in 2020 were another excellent period for the Spanish economy. Spain consolidated and strengthened the recovery it began in mid-2013. The imbalances accumulated over the years have been substantially reduced, creating a more favourable environment and increasing Spanish companies' (as well as Spain's) access to capital markets. As a consequence, GDP grew by 2 per cent in 2019. High liquidity in the debt and capital markets, increased investment capacity of private equity funds (especially international funds), the success of fundraising, low interest rates and the strategic push of big corporations compensated for macroeconomic uncertainties.
These highly positive developments in Spain's economy were nevertheless already being counterbalanced throughout 2019 by political instability (epitomised by the difficulty of obtaining majority government and the still-existing challenges fostered by some pro-independence regional parties in Catalonia), uncertainties about the future of the public pension system, concerns about the global economy (particularly the economic situations of the emerging economies) and in particular the situation in Latin America, the traditional target of Spanish direct foreign investments, uncertainties related to Brexit and tense trade relations with the United States.
As a consequence, M&A activity targeting Iberia in 2019 decreased considerably in terms of volume from the preceding year (an approximate decrease of €34 billion from 2018), reaching the lowest levels since 2015. The number of deals in 2019 was also below those in 2018 (down by 50 deals).
Post-covid, the rapid escalation of the public health crisis and the resulting lockdowns has affected every industry and corner of the globe. During the first quarter of 2020, Spain's GDP fell by 5.2 per cent (compared to the end of 2019) and M&A activity has been put on hold (an estimated €12 billion in deals has been delayed).
The main drivers of M&A activity in 2019 and the first quarter of 2020 were the following:
- Spanish targets had become attractive due to the strengthening of their operations and balance sheets, the significant improvement of the macroeconomic environment, including the depreciation of the euro, and the availability of debt financing buttressed by low interest rates, which are not expected to increase. However, the covid-19 health crisis has jeopardised the strengthening of balance sheets and the macroeconomic environment.
- Spanish corporate and financial institutions are completing their deleveraging processes. Spanish banks and other financial institutions have continued selling non-core assets and branches, divested performing and non-performing loan portfolios, and have exited from industrial shareholdings.
- Energy, healthcare, tourism, IT and telecommunications have also attracted significant investments due to an increased consolidation in those industries and changes in the regulatory framework. In 2019, real estate was also particularly relevant due to the continuous increase in prices over recent years.
- Foreign strategic and financial investors remain focused on Spain and interested in both strategic and opportunistic investments. Europe is the main source of those investments, followed by North American and Latin American investments, mainly from the United States and Mexico. Certain Asian countries (Hong Kong and Singapore, mainly) have also been relevant players in terms of foreign investment.
- Outbound foreign investments have also increased, focusing Spanish investments mainly on Europe, Latin America and the United States, and to a lesser extent Asia.
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General introduction to the legal framework for M&A
i Corporate law
The basic Spanish legal framework for corporate acquisitions, mergers and other types of corporate restructuring includes elements of both contract and corporate law.
Spanish contract law is mainly contained in the Civil and Commercial Codes of the 19th century. Seeking to modernise and update this legal framework, the Ministry of Justice worked on a new Commercial Code with the aim of codifying the entire body of law on commercial contracts into a single piece of legislation. However, the draft bill has not been submitted to Parliament.
Spanish corporate law, on the other hand, is primarily based on the Companies Law (the governing framework for the most common corporate forms in Spain) and the Law on Corporate Reorganisations (the governing framework for mergers, spin-offs, conversions, en bloc transfers of assets and liabilities and international transfers of registered addresses).
The rules that must be taken into account in connection with the main regulated markets include the Consolidated Stock Market Law (framework for the securities market), the Law on Discipline and Intervention of Credit Institutions (framework for the credit market) and the Private Insurance Supervisory Law (framework for the insurance market).
ii Insolvency law
The general legal framework on insolvency is primarily contained in the Insolvency Law.
The Insolvency Law created a single insolvency procedure applicable to all insolvent debtors (i.e., debtors who are, or will imminently be, unable to regularly comply in a timely manner with their payment obligations). The single procedure has a joint phase with two potential outcomes: a creditors' agreement (in which the debtor and creditors reach an agreement on the payment of outstanding claims), or the liquidation of the debtor's assets to satisfy its debts. It has also clarified the risks associated with the clawback (rescission) of transactions carried out within the two years preceding a declaration of insolvency that are considered detrimental to the debtor's estate.
The Insolvency Law enacted in 2003 was amended on several occasions (2009, 2011, 2013, 2014 and 2015), leaving, as a result, a diverse, complex body of insolvency regulations due to an array of legal provisions being applied. Accordingly, the Insolvency Law was amended and restated on 5 May 2020 by virtue of Royal Legislative Decree 1/2020 with the aim of harmonising and clarifying insolvency regulations.
According to recent statistics, the number of insolvency proceedings has increased with respect to 2018, following a trend that commenced in 2017 interrupting the downward trend started in 2013. Despite the measures approved by the Spanish government to mitigate the impact of the covid-19 health crisis, it is inevitable to expect an increase in insolvency proceedings throughout the remainder of 2020 and 2021.
iii Other regulations
Other matters relating to, inter alia, tax, employment and competition law also form part of the M&A legal framework (see below).
Strategies to increase transparency and predictability
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Developments in corporate and takeover law and their impact
Due to parliamentary inactivity in recent years as a result of the difficulty of obtaining majorities in Parliament, there has been reduced legislative activity in terms of corporate and takeover law.
A Business Secrets Law was enacted in February 2019. This new regime, which is complemented by other existing regulations (such as unfair competition law or the law regarding the regulation of criminal breaches of confidence) provides companies operating in Spain with a useful mechanism to protect trade secrets from third parties' illegal interference.
Hastened by the covid-19 health crisis, new screening mechanisms for specific investments made by non-EU and non-EFTA residents were enacted in March 2020 based on public order, public health and public security reasons. Pursuant to this screening mechanism, prior authorisation from the Spanish Council of Ministers – or lower-tier authorities if the investment value is less than €5 million – is required for any foreign direct investment worth over €1 million if:
- made in connection with critical sectors (i.e., critical infrastructure, critical technologies and dual use items, supply of critical inputs (including energy or raw materials) and food security, sectors with access to sensitive information and media); or
- carried out by specific foreign investors regardless of the sector (i.e., who have already made an investment affecting national security, public order or public health in another EU Member State – including an investment in any of the above-mentioned sectors – are directly or indirectly controlled by a foreign government or are subject to ongoing judicial or administrative procedures for engaging in illegal or criminal activities).
Foreign direct investments made pursuant to these regulations are those that result in a foreign investor reaching a stake of at least 10 per cent of the share capital of a Spanish company and any corporate transaction, business action or legal transaction that enables effective participation in the management or control of a Spanish company. Gun-jumping the mechanism would result in the transaction being considered invalid and without any legal effect, as well as lead to the imposition of fines up to the value of the investment. Although passed during the covid-19 crisis, this legislation is not a transitional measure and is expected to remain in force for the long term.
It is also foreseen that, during 2020:
- a new regulation of the commercial registry will be approved (the current regulation dates back to 1996) that will modernise its mechanisms and organisation, and adapt this legislation to the current corporate legal regime; and
- the Companies Law and other financing regulations will be amended to implement Directive (EU) 2017/828 of the European Parliament and the Council amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement.
Us antitrust enforcement: the year in review
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Foreign involvement in M&A transactions
2019 saw an increase in the interest of international investors in the Spanish real estate, energy, tourism, engineering and insurance sectors. Private equity investments continued to grow, and the outlook for 2020 both for inbound and outbound M&A remains strong. By way of example:
- the Carlyle Group acquired a significant minority stake in the oil company Compañía Española de Petróleos, SAU (Cepsa) for €2.8 billion;
- LetterOne, an international investment business based in Luxembourg, acquired DIA Distribuidora Internacional de Alimentación for €1.6 billion;
- PAI Partners SAS, a France-based private equity firm, through its PAI Europe VII fund, invested in Areas, SA, a Spain-based company engaged in food and beverage services and travel retail business for €1.54 billion;
- a consortium led by EQT Partners, a Swedish private equity group, acquired Parques Reunidos Servicios Centrales SA, a Spain-based and listed operator of entertainment parks for €1.2 billion; and
- CVC Capital Partners Limited, the UK-based private equity firm, acquired Universidad Alfonso X el Sabio by CVC for €1.1 billion.
The following, among others, were announced in 2020 or are currently in the pipeline:
- the acquisition by SIX Group AG, a Switzerland-based operator of stock markets and financial systems, of Bolsas y Mercados Espanoles, SA, a listed Spain-based operator of stock markets and financial systems, for €2.28 billion;
- the acquisition by Siemens AG of 8.07 per cent of Siemens Gamesa Renewable Energy, SA, a listed Spain-based company that designs, builds and operates renewable energy power plants, from Iberdrola SA for €1.1 billion;
- the acquisition by EQT Partners of idealista, SA, a Spanish online property marketplace, from Apax Partners for €1.3 billion;
- the acquisition by International Consolidated Airlines Group, SA, a listed UK-based holding company of British Airways, Iberia, Vueling and Aer Lingus, through its subsidiary IB OPCO Holding SL, of Air Europa Líneas Aéreas, SA for €1 billion; and
- the acquisition by Helvetia Holding AG of Caser Seguros, SA, a Spain-based company engaged in providing personal insurance policies, for €800 million.
Significant transactions, key trends and hot industries
i Public M&A
Public M&A witnessed less activity, with international investors focused on public megadeals in energy, retail and leisure:
- the aforementioned Carlyle Group's acquisition of a significant minority stake in Cepsa, a Spain-based company engaged in the exploration for and production of petroleum, and the refining, distribution and sale of crude oil, natural gas and electricity, from Mubadala Investment Company PJSC, the UAE-based sovereign wealth fund, for €2.2 billion;
- the acquisition of DIA Distribuidora Internacional de Alimentación, by LetterOne, for €1.6 billion;
- the acquisition of Parques Reunidos Servicios Centrales SA, by a consortium formed by EQT Partners (Sweden), Groupe Bruxelles Lambert SA (Belgium) and Corporacion Financiera Alba SA (Spain), for €1.2 billion; and
- the take-private transaction launched by KKR, Cinven and Providence in connection with MasMóvil, Spain's fourth-largest telecommunications operator.
ii Real estate
As mentioned in previous editions, real estate has established itself as a prominent field for M&A activity after years of market corrections. Attractive prices combined with banks' need to clear their balance sheets of real estate assets have catalysed the resurgence of real estate transactions in the Spanish market. To foster this resurgence, the government has not amended the tax framework applicable to the Spanish SOCIMIs, which are similar to real estate investment trusts and are more attractive to investors. However, real estate deals have shrunk during 2019. The most significant transactions in real estate activity include the following:
- Oaktree Capital Group LLC, launched an offer to acquire SDIN Residencial, SLU, a Spain-based property development company, from Banco de Sabadell, SA for €882 million;
- the acquisition by TPG Real Estate of 75 per cent stake in Tempore Properties SOCIMI, SA for €247 million; and
- Merlin Properties SOCIMI, a Spain-based real estate investment trust, acquired 14.46 per cent stake in Distrito Castellana Norte, SA (DCN), a Spain-based property development company for €169 million.
The covid-19 health crisis, and the consequences in the tourism industry, will certainly affect real estate deals within the hospitality sector. Nevertheless, for the remainder of 2020 and 2021, given COVID-19, we can expect distress investments (including NPL portfolios), as well as transactions related to logistic platforms and 'build-to-rent' assets.
iii Initial public offerings
Without a doubt, 2019 was a bad year for Spanish stock exchange, both on the traditional continuous market (with zero initial public offerings (IPOs)) and on the Mercado Alternativo Bursátil (which saw fewer IPOs than in previous years, such as Holaluz), a market (with a special set of regulations) for small companies seeking to expand.
In general, forecasts for 2020 are even more pessimistic, due to political uncertainty and the covid-19 health crisis.
iv Private equity
Despite Spanish private equity activity decreasing in 2019 compared to 2018, it nevertheless resulted in the second-highest number of buyouts ever (€16.6 billion in comparison to €26.7 billion in 2018) and the third-highest ever number of exits (€5.5 billion).
Spain has had three consecutive years of record investment volume, which is positive news not only for private equity activity but for the Spanish economy as a whole. In 2019, more foreign investors (private equity, hedge funds and investment banks) landed in Spain looking for investment opportunities. Domestic private equity funds and asset managers remained interested in co-investment opportunities with foreign-funds, offering their 'boots on the ground' approach and expertise to larger players, spurring M&A activity.
International funds accounted for 80.7 per cent of the total investment volume, suggesting that Spain remains the 'place to be'. However, domestic players have also been highly active. On the divestment front, nearly 50 per cent of exits took the form of secondary sales between private equity sponsors, while almost a quarter involved strategic buyers.
After the pandemic, the question will be whether private equity activity can be revived as some semblance of normality returns. Although still early, with fixed-income yields at record lows and equity markets appearing fully valued, investors need to diversify into alternative assets: Spain is one of the most attractive regions for private equity on a risk-return basis. Nevertheless, private equity investments appear to have decreased by 54 per cent in the first and second quarters of 2020 to €1.72 million in equity value.
The most active sectors for private equity investments by deal count during 2019 were technology, media and telecommunications, followed by energy, mining and utilities. One consequence of the covid-19 health crisis has been that new sectors are attracting increasingly more private-equity investment: healthcare, biotechnology, telecoms and electronics.
Technology sectors in Spain have made impressive progress in the past few years. They have showcased the greater number of deals per industry sector in 2019, with steady growth in deal value. The important international component of technology-driven transactions evidence how Spanish companies have developed experience at home that they have exported overseas with great success.
After several years beating records by two digits, forecasts estimate that the Iberian EBITDA buyout multiples might be revised during 2020.
- the acquisition of Areas, SA from Elior SCA for a consideration of €1.54 billion by PAI Partners through its PAI Europe VII fund;
- the acquisition of Parques Reunidos Servicios Centrales SA, by a consortium formed by EQT Partners (Sweden), Groupe Bruxelles Lambert SA (Belgium) and Corporación Financiera Alba SA (Spain), for €1.2 billion;
- the acquisition of Accelya, a Spain-based company providing business process outsourcing services for the airline industry, by Vista Equity Partners Management for €1.17 billion; and
- the acquisition by Ardian of 420MW wind farms portfolio from Renovalia Energy, SA for €550 million.
- Asterion Industrial Partners and F2i SGR SpA, agreed to acquire Sorgenia SpA, an Italy-based company that is engaged in production and distribution of electricity, from Nuova Sorgenia Holding, for €1 billion;
- Horizon Equity Partners, Morgan Stanley Infrastructure Inc., and Altice Europe NV have agreed to sell OMTEL, Estruturas de Comunicacoes, SA, a Portugal-based owner and operator of telecommunications tower, to Spain-based Cellnex Telecom, for €880 million;
- Hermes Infrastructure, a UK-based infrastructure fund management company, has agreed to acquire a 74 per cent stake in six shadow toll concessions of Iridium Concesiones de Infraestructuras, SA, a Spain-based company that develops, and operates various government concessions involving transport and public works infrastructure, for €703 million;
- Electricite de France SA, Swiss Life Asset Management AG and Asterion Industrial Partners SGEIC, SA, have agreed to acquire Energy Assets Group Limited (EAG) from Alinda Capital Partners LLC and Hermes Investment Management, for €595 million; and
- the acquisition of Freepik, a Spain-based 'freemium' graphics and stock photo marketplace, by EQT Partners, for €250 million–300 million.
Financing of m&a: main sources and developments
2019 was a good year for the acquisition financing in Spain, especially in the energy and real estate sectors (including portfolios of non-performing assets). Banks, both Spanish and foreign but with significant presence in our country, remain key players, but direct lending keeps increasing steadily while lowering the finance cost for borrowers. All this has led to multiple deals such as the financing for the acquisition of Starbucks or Grupo Vips, the financing related to the tender offer for Telepizza group and the numerous transactions involving commercial and residential properties. The energy sector is worth mentioning as one that, despite the difference in terms of size and complexity of the deals, has been consistently busy during 2019 and will presumably continue to be.
The main features of acquisition financings in 2019 may be summarised as follows:
- financing products are as varied as the transactions that need to be financed, and bridge facilities have been particularly preferred to avoid delays in the acquisition timeline;
- mandates are more competitive, as certain funds provisions are increasingly accepted, especially in the context of competitive processes. Banks kept accepting underwritten mandates with relatively mild market flex provisions, although reverse flex provisions are still a rarity; and
- the LMA documentation is widely used in mid-sized deals (although most deals still rely on the forms of the lenders' counsel, which by and large reflect the LMA features) and a must in the larger deals. Portability provisions have been accepted in the change of control provisions, and a focus on the replacement of screen rate provisions has been identified.
Although optimism was prevailing at the end of 2019, the impact of covid-19 and the measures taken to contain its spread and effects have severely affected the prospects for 2020.
The main legal framework of labour law in Spain is the Statute of Workers, which regulates the rights and obligations of employees and employers within the framework of labour relationships.
Since the declaration of the state of emergency on 14 March 2020, various Royal Decree Laws and other Regulations have been passed, including extraordinary measures to combat the impact of covid-19 on employment relationships, such as: (1) a ban on dismissals grounded on covid-19-related issues; and (2) specific social security benefits granted to employers. Some of those social security benefits (e.g., those linked to furloughs (ERTE) due to force majeure) entail undertakings that could limit employers' capacity to: (1) implement dismissals within a six-month period after their activities resume; or (2) distribute dividends corresponding to a tax year in which furloughs were implemented.
Apart from these extraordinary regulations, the most recent ordinary legislation of relevance in terms of labour law was Royal Decree-Law 28/2020 on telecommuting, which was enacted on 22 September 2020 and Royal Decree-Law 8/2019 on urgent measures on social protection and against labour precariousness with regard to working hours, which was enacted on 8 March 2019. Royal Decree-Law 8/2019 introduced a set of measures aimed at improving the precariousness of the Spanish labour market and Spanish social security payments.
Transfers of undertakings are governed by Article 44 of the Statute of Workers on terms similar to other jurisdictions within the European Union:
- the transferee company must assume all the transferor's employees assigned to the transferred business or production unit, maintaining all their previous labour and social security rights (including pension commitments); and
- transferor and transferee companies will be jointly and severally liable for three years after a transfer of undertakings takes place in relation to any labour and social security obligations not met before the transfer.
The purpose of the transfer-of-undertakings regulations is to guarantee the stability of employment relationships in the framework of the transfer of a business, and, therefore, it is worth noting that a company transaction itself is not a valid ground for dismissal. However, it is possible and common that, after a transfer, there are grounds to carry out a collective redundancy (e.g., duplicate posts after a merger).
The legal regime for managing and executive directors is not provided for in the Statute of Workers, as these directors are not considered employees. Their service contract must be approved by the board of directors (without the involvement or vote of the relevant director). Such contract must include all the terms and conditions under which services are provided, especially all remuneration and compensation, and directors will not be allowed to receive any payment not expressly set out in their contracts. In 2018, the Spanish Supreme Court confirmed that the remuneration of managing and executive directors is subject to the same requirements and formalities as those applicable to any other director (their remuneration being included in the overall limit approved by the shareholders' meeting for all directors).
Over the past 12 months there has been no new tax legislation that could potentially affect M&A transactions.
However, in the coming months the Spanish government is expected to attempt to pass the State Budget Bill, which could include important tax measures. Due to the current difficulty in obtaining majorities in Parliament, predicting the measures that will ultimately be passed is impossible.
Nevertheless, it should be noted that in the government's first attempt to pass a State Budget Bill in 2019, the bill included various significant tax measures that could affect investments and transactions, such as the amendment of the participation exemption regime limiting the exemption for dividends and capital gains to 95 pe cent of the corresponding income; amendments to the REIT regime and the introduction of a minimum tax for corporate income tax purposes.
Also of note is the new protocol amending the US–Spain tax treaty, the implementation in Spain of DAC6 and various important rulings issued by the Spanish and European courts that potentially affect M&A transactions:
i New protocol amending the US–Spain tax treaty for the avoidance of double taxation
The US and Spain signed a new protocol (the Protocol) amending the current 1990 tax treaty for the avoidance of double taxation between the two countries (the Treaty), which came into force on 27 November 2019.
The Protocol includes significant changes to increase the efficiency of reciprocal direct investment between the US and Spain. Specifically, it brings treaty withholding rates and other provisions into line with the tax treaties in force between the US and the main European Union Member States. In most cases, the Protocol eliminates taxation at source, creating significant savings and increasing net yields:
- on dividends, a zero per cent withholding rate applies to corporate shareholders controlling 80 per cent of the voting stock, under specific conditions (a 5 per cent rate applies to holdings of 10 per cent or more);
- interest and royalty payments will no longer be subject to withholding taxes (limited exceptions apply in connection with specific types of US-source interest); and
- capital gains will only be taxed at source upon the disposal of real estate and real estate holding companies (subject to specific requirements).
ii Court of Justice of the European Union judgments in the Danish cases and their application by the Spanish Administrative Court
In February 2019 the Court of Justice of the European Union (ECJ) handed down specific judgments pertaining to the beneficial ownership test and abusive practices applicable to interest payments and the interpretation of Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States (the Interest Directive), and to the distribution of dividends and the interpretation of Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States (currently Directive 2011/96/EU) (the Parent–Subsidiary Directive).
As a general conclusion, the ECJ stated that domestic tax authorities may invoke general EU anti-abuse rules even if domestic regulations lack any general or specific anti-abuse provisions. As a result, where a fraudulent or abusive practice exists, domestic authorities and courts may refuse to allow a taxpayer to apply the exemption from withholding tax on dividends and interest based on the Directives, even if there are no domestic or treaty-based provisions providing for that refusal.
These ECJ judgments have already been applied by the Spanish Central Administrative Tax Court in its October 2019 decision. The court confirmed the tax authority's rejection of the withholding tax exemption for interest payments by a Spanish company to a Dutch company on the basis that the latter was not the beneficial owner of the payments.
iii Mandatory disclosure rules in relation to reportable cross-border tax-planning arrangements under DAC6
Council Directive 2018/822, of 8 May, amending Directive 2011/16/EU, as regards mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements (DAC6) was approved in May 2018.
Following the recommendations of the BEPS Action 12, the Directive introduces mandatory disclosure rules in connection with potentially aggressive tax planning schemes, referred as reportable cross-border arrangements. The Directive also provides for the additional exchange of this information between the tax authorities of the Member States. The purpose of the Directive is to enable tax authorities to react swiftly to regulatory tax practices: to fill existing gaps in the system by issuing appropriate rules and to carry out risk analyses and tax audits. The Directive also aims to stamp out aggressive tax practices.
For the effective implementation of DAC6 in the EU Member States, DAC6 should be transposed by each Member State. The transposition deadline set by DAC6 was 31 December 2019 and should apply from 1 July 2020 onwards following its transposition. Additionally, DAC6 included an obligation to retroactively report transactions carried out during the transitional period starting 25 June 2018 until 30 June 2020. This information was intended to be filed between 1 July and 31 August 2020.
In view of the covid-19 health crisis, the European Commission decided to propose a postponement of DAC6's entry into force. The beginning of the application of DAC6 would remain 1 July 2020 and the reportable arrangements made during the postponement period would have to be reported by the time the deferral terminates (31 October 2020).
Notwithstanding this, the transposition in Spain has not yet occurred as it is currently winding its way through the parliamentary process; as such, we are not in a position to detail the specific regulations that will ultimately be approved in Spain.
Under Law 15/2007 of 3 July on competition transactions leading to a concentration that fulfil the following thresholds are subject to mandatory notification to Spain's National Markets and Competition Commission (NMCC):
- as a consequence of a transaction, the undertakings obtain a market share of at least 30 per cent in a national market or a substantial part of it regarding a certain product or service. The market share threshold increases to 50 per cent if the target's aggregate turnover in Spain was less than €10 million in the previous financial year; and
- the turnover of the undertakings in Spain in the previous financial year was at least €240 million, provided that at least two of the undertakings concerned had a minimum turnover of €60 million in Spain during the same period.
Some amendments to Law 15/2007 are currently being considered, including the potential introduction of an exemption from notification in cases where the transaction met the turnover threshold but the underlying undertakings do not have a joint market share above 15 per cent in the same product or service market at the national level, or in a substantial part of it provided that the acquirer does not have an individual share equal to or greater than 50 per cent in any other market in Spain. It remains unclear whether this amendment will ultimately be adopted.
Law 15/2007 includes a suspension obligation, requiring that the completion of a transaction meeting any of the thresholds be suspended until clearance is granted.
In 2019, the number of notifications filed was slightly higher (86) than in 2018 (83). Most of the notifications filed were cleared in the first phase without commitments, and only four of them were approved in the first phase with commitments. Only two cases required an in-depth review. Of those two, one was cleared unconditionally and the other was cleared with commitments. During the first half of 2020, merger control activity was significantly impacted by the covid-19 health crisis. Due to the declaration of the state of emergency, deadlines for the adoption of decisions were suspended between March and June. However, the NMCC continued working on cases that do not give rise to competition concerns, and various concentrations were approved.
In terms of antitrust enforcement policy, in 2019 and 2020 the NMCC continued to closely monitor companies' compliance with merger control rules and with its decisions in cases in which commitments were imposed. Within these proceedings, information requests are usually submitted to third parties enquiring about companies' compliance with the conditions imposed.
With the political uncertainties, deep economic crisis and the uncertainty surrounding covid-19, M&A prospects in Spain for the second half of 2020 and 2021 are not particularly optimistic. The macroeconomic scenario, roiled by the notable size of the tourism sector and almost half of the labour market working for small and medium-sized enterprises, will hardly enable a quick recovery. It is expected that Spanish M&A will remain in the doldrums, with a considerable number of paused or cancelled sale processes in the first half of 2020.
Nevertheless, the massive liquidity in the hands of investors, low interest rates and increased access to credit and other financing for Spanish corporations and private equity strengthen the belief that the volume and number of M&A transactions will recover in the short and medium term. On the other hand, we will probably witness distress-driven M&A, defensive M&A deals, in which the merger processes will enable a reduction in costs to maintain profitability (retail, financial services, etc.) and debt transactions.
Likewise, the growing appetite of foreign investors for the Spanish economy will continue to affect the high number of transactions involving foreign investors in Spain. European and US investors will continue to be the main players.
The new complexity of private M&A deals in Spain has led to multiple structures and formulas to determine the price of the transaction, such as rollovers, earn-outs and escrow mechanisms. W&I insurance has also become more prevalent, and not only in private equity sponsored transactions.
Finally, foreign private equity funds will continue investing in a wider range of industries including food and drink, retail, tourism, leisure, energy, infrastructure, real estate, and life sciences and pharma. Healthcare and pharmaceutical industries have potential, as public and private spending continues to increase in response not only to the pandemic, but also to an ageing population. Renewables and technology have attracted investor interest in recent years. These investments are now appearing in a wider range of forms and vehicles.