Private Equity Portugal: Key Insights and Opportunities in 2023

Private equity (PE) in Portugal has gained significant traction over the last few years, as investors increasingly turn their attention to this growing market.

The Portuguese PE market has been attracting a wide range of investors, including international and domestic players, offering promising investment opportunities across various sectors such as technology, energy, infrastructure, and real estate.

This growth has been driven by a favourable regulatory environment and booming investor interest, and it is set to continue in the foreseeable future.

In recent years, the private equity landscape in Portugal has seen noteworthy developments in terms of investment transactions, corporate governance, and stakeholder interest.

Similarly, the integration of environment, social, and governance (ESG) principles and sustainability has become a priority for PE players.

This evolution showcases the maturity and sophistication of the Portuguese PE market, while several renowned firms continue to dominate and shape the industry's future direction.

Key Takeaways

• Portugal's private equity market has experienced significant growth, driven by favourable regulations and diverse investment opportunities.

• Recent developments in the landscape include a focus on corporate governance, stakeholder interest, and ESG principles.

• The industry hosts key players that steer the market trajectory while facing challenges and shaping the future outlook.

Overview of Private Equity in Portugal

The private equity (PE) market in Portugal has been experiencing growth in recent years, with the majority of investments coming from funds managed by Portuguese entities.

Investment through PE companies is less significant, with most activity focused on investments made through PE funds1.

Portugal has been capitalising on the global success of private equity as an investment asset class, particularly during the last few years2.

The funding sources for Portuguese private equity funds commonly include investment banks in Portugal and retail investors from outside the European Union or the European Economic Area (EEA) who invest in private equity funds to gain a Portugal Golden Visa3.

In terms of investment trends, 67% of private equity investments in Portugal in 2022 had an international component, with a total of €1.6 billion posted for cross-border deals4.

Over the past five years, Spain and the United States have been the top investors in the Portuguese market, contributing to 38 and 32 operations respectively4.

Leading private equity and venture capital managers, such as Iberis Capital, have been established in Portugal, reflecting the growth and increased interest in this market5.

They typically invest in various sectors, including innovation and growth, which accounts for the majority of assets under management5.

Overall, the private equity market in Portugal offers diverse investment opportunities and is expected to continue its growth trajectory in the coming years. T

he presence of established funds and increasing international interest further signals the potential for sustained success in this market segment.

Footnotes

1. Private Equity in Portugal: Market and Regulatory Overview ↩

2. A closer look at Portugal's private equity transactions in 2021 ↩

3. Portugal Private Equity Funds: All You Need To Know ↩

4. Private equity in Portugal - growing despite uncertainties ↩ ↩2

5. Iberis Capital - Portuguese Private Equity and Venture Capital Manager ↩ ↩2

Regulatory Landscape

The regulatory landscape of private equity in Portugal is primarily governed by the Portuguese Securities Market Commission (CMVM), which plays a vital role in ensuring compliance and maintaining a transparent market.

The CMVM oversees the enforcement of regulations, such as the Portuguese Securities Code, that aim to protect investors and facilitate healthy market growth.

One of the key regulatory frameworks impacting the private equity market in Portugal is the compliance with European Union (EU) regulations.

The introduction of Regulation (EU) 2019/2088 (SFDR) in March 2021 and its subsequent Delegated Regulation (EU) 2022/1288 that has been in force since 1 January 2023, has significantly influenced the legal framework of private equity in the country.

These regulations lay down various requirements for financial sector participants, including private equity firms, regarding disclosure and transparency in sustainable financing activities.

Private equity players in Portugal are also required to abide by the country's domestic legal framework. The Portuguese Securities Code outlines the guidelines and standards that must be followed by market participants to ensure a robust, transparent, and fair market environment.

Additionally, private equity firms must adhere to specific licensing requirements, as established by the CMVM and other relevant regulators.

In order to maintain a healthy and secure market, the CMVM actively monitors and enforces compliance of market participants with the established regulations.

This includes conducting regular inspections and imposing sanctions on entities that are found to be in breach of the regulatory requirements, thus ensuring a high level of market integrity and investor confidence.

In summary, the regulatory landscape for private equity in Portugal is governed by a combination of EU and domestic regulations enforced by the CMVM and other relevant authorities.

Compliance with these legal frameworks is essential for market participants to ensure a transparent, stable, and secure environment that fosters the development of the private equity market in the country.

Investment Scope and Sector Focus

Portugal's private equity landscape has seen significant growth in recent years, with an increase of 9.8% in 2019 in assets under management (AUM), amounting to €5.7 billion.

A diverse range of sectors and industries have attracted investments, providing lucrative opportunities to investors.

Investment opportunities in Portugal are not limited to any single sector. The technology, healthcare, and Information and Communications Technology (ICT) sectors have been particularly attractive to private equity firms.

These industries have flourished, propelled by a strong entrepreneurial spirit and a favourable business environment.

Venture capital investments, a sub-category of private equity, are crucial for supporting early-stage startups in Portugal.

In recent years, numerous technology-based companies have taken advantage of venture capital investments to innovate and expand their presence in the global market.

The real estate sector has also been a popular choice among private equity investors.

The Portuguese property market is characterised by relatively low property prices compared to other European countries, making it an attractive option for fund managers seeking dependable returns.

Other industries, such as infrastructure, education, hospitality, and tourism, have also garnered attention from private equity investors.

The government has initiated several public-private partnerships to increase the funding available for infrastructure development, while the hospitality and tourism sectors have experienced strong growth, driven by the country's robust tourism appeal.

In summary, Portugal offers a diverse range of investment opportunities for private equity firms, spanning across various sectors with diverse risk profiles.

With continued government support, innovative business ideas, and an expanding economy, the country is well-positioned to remain an attractive destination for private equity investments in the coming years.

Key Private Equity Players

In the Portuguese private equity landscape, several prominent players are contributing significantly to the growth of the market, investing in various companies across different sectors.

The market is dominated by private equity funds run by Portuguese based management entities, among which some of the key players include Crest Capital, ECS, Explorer Investments, and Iberis Capital.

Crest Capital is a well-established private equity firm with a team consisting of seasoned professionals such as Marco Lebre, David Calem Ferreira, Inês Lopo De Carvalho, Pedro Valente, Vasco D'Orey, and Gonçalo Abreu.

They have a proven track record in successfully managing investments and generating attractive returns for their investors source.

ECS is another prominent player, led by experienced professionals Fernando Esmeraldo and Gonçalo Batalha.

Their expertise in the private equity space positions them as a trusted partner for high-growth companies seeking financial support and strategic guidance.

Explorer Investments is known for its diverse and talented team, which includes Rodrigo Guimarães, Elizabeth Rothfield, Ana Leite, Pedro Seabra, José Tiago Silva, and António Rocha e Silva.

The firm focuses on partnering with promising companies, offering valuable expertise, and strategic guidance for sustainable growth source.

Iberis Capital, founded by João Miranda, Nuno Pinho, Nuno Almeida, and Miguel Gonçalves, primarily focuses on mid-market companies in Portugal and Spain.

Their investment strategy involves partnering with talented entrepreneurs to build world-class businesses source.

Private Equity Funds and Pension Funds play a critical role in the industry, offering capital and long-term commitment to the companies they invest in.

Venture Capital Investment funds are more inclined to invest in innovative and high-growth startups, while Equity Investment funds focus on providing a mix of financing, including debt and equity to businesses that show potential for growth.

Independent private equity firms contribute to the diversity of the market, as they can focus on niche sectors or tailor their investment strategies to suit the specific needs of their portfolios.

In summary, the Portuguese private equity landscape offers a strong lineup of seasoned players and a mix of funds contributing to the development of companies spanning various sectors.

With a confident and knowledgeable approach, these entities are driving growth and fostering business success in Portugal.

Impact of Covid-19 on Private Equity Market

The Covid-19 pandemic has had a significant effect on the private equity market in Portugal, similar to its impact on other countries worldwide.

In 2020, M&A transactions in Portugal reached nearly €10.4 billion, in comparison to the €13.4 billion figure in 2019. This drop can be attributed to the uncertainty and challenges businesses faced during the height of the pandemic.

Despite the overall decline in M&A transactions, the venture capital market in Portugal showed remarkable resilience. Transaction volume in venture capital increased by 87.6% compared to 2020 levels, rising to €1.542 billion.

This growth can be attributed to the innovative and adaptable nature of start-ups. Moreover, these businesses could capitalise on opportunities generated by the pandemic, such as digitalisation and remote work.

One reason for the resilience of the Portuguese private equity market is the implementation of robust business plans during the crisis. Firms that could pivot and adapt their strategies to account for the challenges of the pandemic managed to attract investments and maintain growth.

Investors were also focused on companies with strong management teams and proven track records, looking for stability and lesser risks during turbulent times.

Distressed debt emerged as another area of interest amid the Covid-19 pandemic. The economic fallout from the pandemic led to an increase in the number of struggling businesses, creating opportunities for private equity firms to invest in distressed assets.

Investors could potentially benefit from acquiring companies at discounted rates and helping them to recover, thereby delivering substantial returns once the market stabilises.

In conclusion, despite the negative impact of Covid-19 on Portugal's private equity market, some sectors like venture capital and distressed debt have shown resilience and potential for growth.

Companies that have adapted their business strategies and remained agile during the pandemic are more likely to succeed in the long term and attract investments.

Investment Transactions in Private Equity

Portugal has experienced a steady growth in private equity transactions in recent years.

This growth is attributed to an increase in the number and value of deals involving acquisitions, mergers, buyouts, corporate restructurings, and shareholdings in various industries.

Some notable transactions in the past include the acquisition of a 25% minority stake in big-box retailer Sonae MC by CVC Capital Partners and the Ontario Teachers' Pension Plan's acquisition of the US PE firm Carlyle Group's majority stake in Logoplaste.

In Portugal, offering managers equity incentives or ownership is a common feature of private equity transactions.

However, the manner of attribution and extent of management shares can vary significantly, ranging from residual (5-10%) to substantial (40-49%) participations.

Growth and turnaround transactions have been reported as dominant types of deals in the market, accounting for 25.3% and 24.7% of the value in private equity transactions, respectively.

In 2022, the volume of private equity investments witnessed a surge with 49 transactions amounting to a total value of €1.6 billion, representing an increase in volume and value.

Private equity firms in Portugal have been actively conducting due diligence to assess potential targets for buyouts and other transactions.

The number of private equity companies and funds operating in the country has increased, with 61 private equity firms and 202 funds as of the end of 2020.

Overall, the landscape of investment transactions in private equity in Portugal demonstrates a promising future, with steady growth, diverse deal-making, and a growing presence of international investors.

Corporate Governance and Stakeholder Interest

In the Private Equity sector in Portugal, corporate governance plays a crucial role in ensuring the alignment of interests among various stakeholders, such as the founding partners, senior advisors, management teams and board members of portfolio companies.

A robust governance model ensures the effective management of these companies and safeguards their long-term value creation potential.

Board composition is a vital aspect of corporate governance in the Portuguese private equity landscape. Provisions of Law no. 18/2015 dictate that private equity funds are managed by a separate entity, known as the private equity company.

This separation of management and stakeholders' interests helps promote transparency and accountability.

The board members typically consist of both executive and non-executive directors, bringing diverse skills and experience to the decision-making process. Private equity investors often have one or more representatives on the board of directors to serve as non-executive directors, further strengthening their interest alignment with the portfolio companies.

Stakeholders play a significant and active role in influencing management decisions, with the board regularly reviewing company strategy and monitoring performance.

Effective communication between the board and the stakeholders is particularly essential for aligning the two parties' interests.

In Portugal's Private Equity market, shareholder and stakeholder engagement has become a key focus area, with companies placing greater emphasis on transparency and adopting Environmental, Social, and Governance (ESG) criteria to meet increasing accountability demands.

Senior advisors bring added value to private equity firms by offering invaluable insights, business contacts, and industry expertise.

Their roles may vary based on the nature of the firm and individual expertise, ranging from offering strategic guidance to the company on a particular transaction to mentoring the management team.

These advisors help bridge the gap between the founding partners and the portfolio companies, ensuring there is a shared vision and understanding of the business objectives.

In summary, corporate governance and stakeholder interest alignment in Portugal's Private Equity sector are essential for enabling a well-functioning ecosystem that allows the industry to continue its active involvement in the recovery and growth of the Portuguese economy.

By fostering transparency, maintaining board independence, and ensuring active stakeholder engagement, the industry can confidently navigate challenges and capitalise on the vast opportunities in the market.

ESG and Sustainability in Private Equity

Environmental, social, and governance (ESG) factors have increasingly become crucial considerations for private equity firms worldwide, including Portugal.

These factors are pivotal in investment decisions and portfolio management, as they contribute to long-term value creation and risk mitigation1.

The adoption of ESG principles within private equity is driven by various forces, including growing demand from investors for transparent and sustainable investment strategies.

Additionally, regulatory frameworks focusing on sustainable finance continue to evolve, leading private equity firms to adapt their practices to comply with new regulations2.

In the context of Portugal, the engagement with ESG in private equity remains focused on driving improved operational efficiencies and generating long-lasting value within the broader market.

As a result, numerous private equity firms have started to integrate ESG factors into their investment analysis and portfolio company management processes3.

Some of the key areas of focus within ESG integration in private equity include responsible sourcing and supply chain management, worker health and safety, resource efficiency, stakeholder relations and disclosure practices4.

By addressing these aspects, private equity firms in Portugal can proactively respond to evolving investor expectations, reduce risks, and ultimately, realise long-term growth opportunities.

In order to improve the ESG performance of their portfolio companies, private equity firms should consider leveraging appropriate tools and resources.

For instance, firms can use ESG data and ratings from reputed providers such as EcoVadis to benchmark and monitor the sustainability performance of their investments5. Additionally, impactful ESG reporting frameworks can facilitate transparent communication with stakeholders on the firm's ESG journey and progress.

In conclusion, ESG and sustainability considerations remain vital for private equity firms in Portugal and across the globe.

As regulations and investor demand continue to evolve, private equity players should endeavour to incorporate ESG factors into their investment processes, ultimately fostering sustainable growth and value creation.

Footnotes

1. Wellington Portugal Institutional: ESG and private equity trends for 2023 ↩

2. Pictet Asset Management: ESG in private equity ↩

3. kpmg.com: ESG Metrics in Private Equity ↩

4. Bain & Company: The Expanding Case for ESG in Private Equity ↩

5. EcoVadis, business sustainability ratings ↩

Funding and Returns in Private Equity

The Portuguese private equity industry, while relatively small, continues to grow at a steady pace. In recent years, the total private equity investment has increased from EUR3.5 billion in 2017 to EUR7 billion by 20211.

This growth can be attributed to various factors, such as low interest rates, fund raising initiatives, and the entry of new market players.

Low interest rates have played a significant role in attracting investments to the private equity sector. As traditional savings and fixed-income instruments offer lower returns, investors seek alternative asset classes, such as private equity, to generate higher returns2.

This trend has fostered a favourable environment for private equity firms to raise funds and expand their portfolios.

Fund raising has been an important element in the growth of Portugal's private equity market. Portuguese private equity funds generally acquire funding through investment banks and, to a lesser extent, from retail investors outside the European Union or EEA subscribing for Portugal Golden Visas3.

By diversifying their sources of capital, these funds are better equipped to weather market fluctuations and maintain liquidity.

Returns on private equity investments can vary significantly, depending on factors such as the economic climate, sector focus, and investment strategy.

For example, investments in fast-growing technology or healthcare companies may generate higher returns, while those in traditional industries may yield lower returns.

Nevertheless, given the long-term nature of private equity investments, it is essential to adopt a patient and disciplined approach to realise the full potential of such investments.

Liquidity in the Portuguese private equity market has been relatively stable, with limited instances of capital overhang.

This availability of liquidity has helped sustain investment activity and allowed private equity firms to take advantage of attractive investment opportunities. Additionally, liquidity is also influenced by factors such as the pace of asset valuation and the rate of portfolio company divestments4.

Asset valuation plays a crucial role in determining the success of private equity investments.

The industry generally follows a combination of methods, such as discounted cash flow, earnings multiples, and transaction multiples, to determine a company's valuation.

Accurate valuation is essential, as it affects private equity firms' investment decisions, their ability to raise funds, and the ultimate return on investment for limited partners.

Divestment is an important aspect of private equity, as it allows for the realisation of profits and provides valuable capital to reinvest in new ventures.

In Portugal, divestment primarily occurs through strategic sales, secondary buyouts, and initial public offerings5. By effectively managing the divestment process, private equity firms can maximise their returns while mitigating potential risks.

In conclusion, the Portuguese private equity sector has experienced significant growth in recent years, driven by factors such as low interest rates, fund raising activities, and market expansion.

Continued focus on delivering strong returns, managing liquidity and ensuring effective asset valuations will be crucial for sustaining the industry's positive trajectory.

Footnotes

1. https://practiceguides.chambers.com/practice-guides/private-equity-2023/portugal ↩

2. https://www.theportugalnews.com/news/2022-04-22/investment-funds-in-portugal-challenges-and-opportunities/66540 ↩

3. https://www.globalcitizensolutions.com/portugal-private-equity-funds/ ↩

4. https://www.iflr.com/article/2a647e1ubbp4gen8w85xc/a-closer-look-at-portugals-private-equity-transactions-in-2021 ↩

5. https://uk.practicallaw.thomsonreuters.com/w-016-4688?contextData=(sc.Default) ↩

Challenges and Future Outlook

The Portuguese private equity industry, although still relatively small, has experienced significant growth in recent years. In 2017, private equity investment in Portugal totalled EUR 3.5 billion, and by 2021, this amount had reached a total of EUR 7 billion1.

Despite this growth, the market faces various challenges and uncertainties.

One of the key challenges in the industry is the fluctuation in foreign direct investment (FDI). Portugal has increasingly become an attractive destination for FDI due to its competitive labour costs and favourable business environment2.

However, external factors, such as global economic uncertainties and inflation, can impact FDI inflows and subsequently affect the growth of the private equity market.

An essential aspect of the private equity industry's future outlook is the role of the Portuguese Competition Authority.

As the market continues to expand, the Competition Authority will likely play a more significant role in ensuring a level playing field for all market participants.

This involvement could result in an increase in regulatory scrutiny and potential changes to the regulatory framework3.

Another factor contributing to the future outlook of the private equity market in Portugal is market growth. The market has experienced consistent growth over the last decade4.

Nonetheless, it remains to be seen whether this growth will continue at the same pace or if it will slow down due to market saturation or other external factors.

In conclusion, the private equity market in Portugal has displayed a positive trend in recent years, with substantial market growth and increased foreign investment.

However, factors such as FDI fluctuations, inflation, and potential regulatory changes pose challenges for the industry's future.

A confident and knowledgeable understanding of these challenges and future outlook is essential for industry stakeholders to make well-informed decisions.

Footnotes

1. https://practiceguides.chambers.com/practice-guides/private-equity-2023/portugal/trends-and-developments ↩

2. https://www.essential-business.pt/2023/04/24/private-equity-in-portugal-growing-despite-uncertainties/ ↩

3. https://www.wellington.com/en-pt/intermediary/insights/private-equity-outlook-innovation-continues ↩

4. https://www.theportugalnews.com/news/2022-04-22/investment-funds-in-portugal-challenges-and-opportunities/66540 ↩

Frequently Asked Questions

How do Golden Visa funds operate in Portugal?

Golden Visa funds are a popular way for private equity investments to take place in Portugal, particularly among non-European investors.

By subscribing to a qualifying private equity fund, foreign investors can obtain a Portugal Golden Visa which grants them residency rights and potential access to the European Union market.

These funds usually obtain their funding through Portuguese investment banks and focus on various industries, contributing to the growth of the Portuguese economy.

What are the main differences between venture capital and private equity in Portugal?

Venture capital is a form of financing for early-stage, high-potential companies, aiming to support their growth and development.

In contrast, private equity focuses on later-stage companies or those undergoing a transition, such as a buyout or restructuring. In Portugal, the private equity market is dominated by Portuguese-based management entities.

Both types of investments play an essential role in the country's economic growth and the revitalisation of various industries.

Can you recommend some active private equity firms in Portugal?

Portugal hosts several successful and active private equity firms, catering to different investment focuses and strategies. Some notable firms include Vallis Capital Partners, ECS Investments, Oxy Capital, Magnum Capital Partners, and Explorer Investments.

These firms have established strong footholds within the Portuguese market and have contributed to the country's positive economic growth.

What is the focus of Portugal Yield Fund II?

While there isn't any specific information available for a "Portugal Yield Fund II" during my search, it's worth mentioning that private equity funds in Portugal often focus on a variety of sectors, including technology, healthcare, infrastructure, and renewable energy. Investors should research individual funds for their focus areas and investment strategies to find a suitable match for their goals.

Who are the key players of ECS Investments?

ECS Investments is a private equity firm based in Portugal, with experience in leading investments and buyouts in many industries.

The key players of ECS Investments include its partners and managing team, such as the founding partner António de Sousa, the investment director Pedro Maria, and others who contribute to the firm's investment strategies, deal sourcing, and management of portfolio companies.

What sectors do Vallis Capital Partners typically invest in?

Vallis Capital Partners is a private equity firm operating in Portugal and focusing on investments in sectors such as energy, infrastructure, environment, and natural resources.

The firm seeks to create long-term value by acquiring, financing, and managing assets with great potential.

Their investment strategy revolves around identifying unique opportunities, partnering with strong management teams, and implementing operational improvements to drive growth and profitability.

Top Private Equity Firms Portugal