SPAIN Law and Practice Contributed by: Ignacio Sanjurjo, Ignacio Echenagusia, Alejandro Espín and Román Cantín, Deloitte Abogados y Asesores Tributarios, S.L.U.
10.3 IPO Although an IPO remains the preferred exit strategy for PE funds in large-scale transactions, it has become increasingly uncommon, particularly following the global financial crisis of 2007–08, the COVID-19 pan - demic, the geopolitical uncertainty in recent years and the US tariff policies introduced in early 2025. When a PE fund sponsors an IPO, the process differs from that of a non-PE-backed company. Key features are as follows. • Valuation and pricing: PE funds typically work with investment banks to establish an initial price attrac - tive to both industrial and PE investors, ensuring market traction and optimal proceeds. • Relationship with the company and management: PE funds often have an active role in the man - agement and strategy of the invested company. However, after the IPO, their influence may dimin - ish as the company becomes subject to increased scrutiny and governance by shareholders. • Partial or total sale: Depending on the market con - ditions and the PE fund’s internal strategies, the IPO may involve a total or partial divestment. Some PE funds decide to retain a residual participation to benefit from potential future price increases.
Secondary buyouts have notably increased during the past few years; 2022 marked the peak in activity, wherein these transactions represented over 40% of all deals. This trend was primarily driven by market liquidity from recent capital-raising activity. Although secondary buyouts decreased during 2023, when almost 80% of all deals were pure investments, the market rebounded in 2024, with secondary buyouts once again gaining momentum and accounting for approximately 38% of all transactions. 10.2 Drag and Tag Rights PE transactions commonly include drag-along rights in favour of PE investors, regulated in the SHA to enhance the PE fund’s capacity to execute a partial or total divestment. Thresholds for exercising drag-along rights may vary depending on the transaction. They are generally enforceable against any co-investors, regardless of their nature or the shareholding. When a co-investor is another PE firm, the lock-up periods and exit mechanisms are often heavily negotiated, as aligned exit strategies are critical. Minority and manager shareholders are frequently vested with tag-along rights under the SHA. For man - agement shareholders, these rights are triggered by the PE fund’s sale of a stake leading to a change of control. If the PE investor is a minority shareholder, or when two or more PE funds co-invest in the same target, such PE shareholders usually have reciprocal tag-along and drag-along rights. It is advisable to clearly establish which mechanism shall prevail in case of overlap between rights (ie, pre- emption right, tag-along, drag-along). Additionally, irrespective of the exit mechanism, a clear procedure should govern the communication between share - holders and the management body, including time - frames and the consequences of non-compliance.
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