Loizaga: Expect more GPs to merge

Mercapital chairman Javier Loizaga tells PE Manager why his firm’s merger with peer N+1 is both a 'defensive and offensive' measure.

In some respects it’s all change at Spanish GP Mercapital – the firm’s investment team will have some new neighbours shortly in the form of former rivals N+1, it has a new – and somewhat unwieldy – name to embrace, and a couple of new offices to populate. In many respects though, it’s business as usual.

The firm’s acquisition of restaurant business Rubaiyat Group last week shows that the firm – which is still operating as plain old Mercapital until the merger completes sometime around year end – is still keen to put capital to work, even as it begins the process of integration with its new partner.

Javier Loizaga

Mercapital chief executive Javier Loizaga  explained the combined N+1 Mercapital firm will be opening offices in Latin America – specifically Bogota and Mexico – over the next six months. It’s busily recruiting personnel for those offices amongst the ranks of local private equity professionals, Loizaga said. 

“In terms of who and how many people we move over to the new offices, it’s not defined yet – it may not be necessary at all if we find the right talent locally,” he explained.

The two Spanish firms won’t be cutting any investment staff as part of the merger, Loizaga said, although there may be “synergies” amongst back office personnel.

The key issue, of course, is the reasoning behind the merger. Sceptics have suggested it’s simply a bid for survival by two struggling GPs in a particularly difficult domestic market.

Loizaga openly admits there was a defensive element to the tie-up. “It’s going to be much more difficult raising capital for Spain going forward – we realise that. Teaming up with N+1 made sense – we are the two most similar GPs in the Spanish market so the integration process will be easy. Our combined track record is very powerful, and that puts us in a better position to raise capital next time.”

N+1 Mercapital, as the new entity will be called, said it would raise a fund next year – almost certainly in the first half. Sources indicate that although no target has yet been set, it is likely to be of a similar size as the two GPs’ current funds, putting it in the €500 million to €600 million range.

Teaming up gives us more resources, both financially and in terms of personnel, to pursue our strategy

It’s the offensive aspect of the merger that Loizaga, unsurprisingly, chooses to highlight however. “Teaming up gives us more resources, both financially and in terms of personnel, to pursue our strategy of investing in Spanish businesses and helping them to expand in Latin America.”

LPs were supportive of the move, Loizaga said. For them, the merger at least makes the job of choosing which Spanish GP to back that much simpler, if they can be convinced of the investment thesis being pursued.

Loizaga also believes the two firms have simply taken a proactive approach to consolidation, a process which he argues will take place throughout the European private equity industry whether firms wish it or not. “It may not always be through mergers, but this consolidation of the industry will have to happen somehow,” he said.

The success of the merger will be only be judged much further down the line. Next year’s fundraising will be a litmus test, not just of LP sentiment regarding the Spanish market generally, but of the combined firm’s ability to leverage experience of its domestic market and to develop its portfolio in the high-growth Latin American one. Loizaga and his team will doubtless hope they find the proposition as appetising as one of Rubaiyat’s steaks.