Alantra – Finance at a Reasonable Price

Introduction to Alantra

Alantra is a Spanish financial services provider with offices in 19 different countries. The company operates in two key divisions, Asset management, and Financial Advisory, with the latter being the key driver of profitability on a normalized environment.

However, the overall M&A market has been under severe pressure over the past couple of years on the back of the rising interest rate environment, which has weighed on dealmaking activity across the globe. Alantra is specifically focused on the mid-market, which remains on the doldrums (although activity among larger companies has already started to pick up on a y/y basis). Going forward, declining interest rates should provide a tailwind to overall dealmaking activity, whereas Donald Trump’s win in the Presidential election should also be a positive all-else-equal.

The company is sitting on a rock-solid position, with almost ~€150M in net cash and investments on the balance sheet (equating around half of the company’s current market capitalization). Furthermore, the company owns minority interests in a myriad of financial operators valued at €80.9M as of Q3-end (which likely understates the market value of Alantra’s stakes).

Overall, the downside from current pricing appears limited considering the company’s solid financial position and growing asset management business. However, profitability is likely to remain under severe pressure until mid-market M&A picks up; we believe the key risk to be on the watch-out for is dead-money if the recovery is pushed further into the future.

 

Where Are We in the M&A Cycle?

M&A activity tends to be procyclical while also being correlated with interest rates. Dealmaking activity reached a peak in 2021 as the economy recovered from the pandemic and central banks around the globe pursued expansionary monetary policies, with interest rates sitting at ~0% across most Western economies.

However, the specter of inflation made a comeback, forcing central banks to increase key benchmark rates around the globe, severely impacting dealmaking activity (with Europe being especially affected due to heightened geopolitical challenges leading to skyrocketing energy costs).

Although the M&A market has already started to recover from the lows (when looking at deal value), the number of deals has remained under pressure, which illustrates a very interesting trend of activity focusing on large deals, which are usually serviced by the Goldman Sachs and Lazard’s of the world.

However, mid-market M&A, which encompasses deals between $10M-$500M remains lackluster (which is where Alantra focuses on and, as we will illustrate further below, explains the mediocre returns their investment banking unit has generated over the past couple of years). The divergence in activity between large and mid-market M&A has led to an interesting dynamic, with large operators such as Moelis and Lazard sitting close to all-time-highs, whereas companies focused in the mid-market have suffered.

Furthermore, significant disparities across regions have emerged, with North America powering ahead (deal value up 13% y/y in the first nine months of 2024), followed by Europe (deal value up 14% y/y in the same period), whereas in the rest of the world deal value declined (APAC suffered mostly due to a significant slowdown in dealmaking activity in China).

Looking ahead, there are several factors that could act as catalysts for increased M&A activity. The election of Donald Trump as US President should lead to a more hands-off approach to antitrust enforcement, whereas during Biden’s tenure, the FTC managed to successfully block the JetBlue/Spirit Airlines, Tapestry/Capri, and IQVIA/Propel mergers (among others). Additionally, hopes of deregulation and lower taxes should also provide a tailwind to dealmaking activity in the US.

In Europe, we expect dealmaking activity to pick up as interest rates continue to decline and pent-up demand from private equity funds reaching the end of their investment periods, coupled with the deployment of cash from new funds (global private equity funds are estimated to be sitting on around $2 trillion in cash). Interestingly, it seems private equity funds are worried about exit options on large European deals, which could potentially lead to more mid-market transactions (breaking up companies to reduce the difficulty of exit)

Overall, after a couple of years of lackluster M&A activity, dealmaking has started to pick up. However, the numbers are somewhat misleading; while the total deal value is up double-digits y/y, the number of deals has continued to decline, negatively impacting mid-market operators (whereas large boutique firms are sitting close to all-time-highs). Going forward, we believe dealmaking activity will likely continue to improve going into 2025 as investor confidence increases in the US after Donald Trump’s Presidential victory. In Europe, lower interest rates should provide a tailwind (coupled with pent-up demand from private equity funds), although investor confidence remains somewhat lackluster.

Financial Advisory: Investment Banking & FIG

The financial advisory side of the business, which currently includes both investment banking and FIG, is Alantra’s key profit center. As illustrated before, the sector is currently in downturn, although significant disparities have emerged between large-deals and mid-market activity (with the latter being far weaker than the former), and Alantra is focused on the latter. For instance, revenues for Q1/Q3-24 more than halved relative to the same period in 2021 (€63.2M vs €136.4M respectively). FIG performance has also been under pressure, down 35.5% during the same timeframe (€21.6M vs €33.5M). Interestingly, performance has steadily deteriorated over the past three years, with revenues (and profits) down sequentially since 2021 through to the current year.

Although Alantra is predominantly known as a Spanish operator, the company actually closed more deals in the UK in Q1/Q3-23 and in the same period in 2024 than in Spain, as illustrated in the image below. Overall, Europe (including the UK) represents around 82% of the deals closed year-to-date through to Q3 (their exposure to the US is fairly limited, although we believe management would like to expand it).

On top of the company’s geographical diversification, Alantra isn’t focused on any one specific sector, with Alantra facilitating dealmaking in a myriad of industries (as illustrated in the image below). Furthermore, although most of the company’s activity is focused on M&A, they also provide strategic advisory services (on top of capital markets and FIG services).

Overall, Alantra’s financial advisory segment is well diversified on a geographical basis while also operating in a myriad of industries. Performance has been lackluster over the past couple of years as investment banking suffered from rising interest rates, whereas the non-existent recovery in the mid-market (despite improving numbers for larger deals) has proven to be a double-whammy. On the bright side, performance is unlikely to deteriorate much further going forward, especially considering a portion of the cost base is variable (contingent on how the business does), which provides some downside protection.

Asset management

Alantra also has an asset management arm, which as of Q3-end, managed €2.462M, broken down as illustrated in the image below (FAUM stands for fee-earning assets under management, whereas AUM stands for assets under management). Core earnings on this side of the business are significantly more stable than on the investment banking side, since they usually charge a percentage of AUM, although success fees (or the carried interest) tend to be far more volatile from one quarter to another, since it is contingent on realizing the gains on a specific fund.

Overall, the asset management business generated a net profit of €5.3M throughout the first half of the year (the company is only obligated to provide its full financials on a semi-annual basis). Considering asset management businesses tend to carry steep valuations (15x+ earnings), this is a significant value driver for Alantra. Overall, assuming normalized net income of ~€10M (which should be on the conservative side considering it came in at €11.1M last year), and using a 16x multiple, this segment alone should be worth ~€160M for Alantra.

Minority Interests

Alantra also owns stakes in a myriad of operators in the overall financial ecosystem. These are not consolidated on Alantra’s financial statements but have become sizable profit centers (and cash generators by dividend distributions to the parent) over the past couple of years. Between Q1 and Q3-24, Alantra recognized €7.5M using the equity method from its investees, a sizable improvement from 2023’s €4.3M in the same period.

As illustrated in the image below (from the H1-24 financial statement), the largest value drivers are Access Capital Partners Group, Singer Capital Markets, and AMCHOR Investment Strategies. Access Capital Partners is a pan-European private equity outfit managing both funds of funds and direct funds; Alantra acquired its stake for €43.5M in two tranches, and Access is likely more valuable now (although we do not have specific insights on their financials and outlook).

 

Singer Capital Markets is a UK investment bank providing both investment banking services while also being a top liquidity provider for the overall UK stock market (with a 10% market share on AIM throughout 2023). AMCHOR is an asset management outfit focused on private equity.

Valuing Alantra’s participations in these smaller outfits is no easy feat given the limited amount of publicly available information on most of these companies. We believe a reasonable starting point is the book value of these investments on Alantra’s balance sheet, which stood at €80.9M as of Q3-end, but this is likely on the conservative side, especially once the market starts to recover.

Financial Position

Alantra sits on a rock-solid financial position, with €78M in cash and cash equivalents, €27.9M invested in a monetary fund, and €44M invested across an array of products managed by the Group as of Q3-end. The company has no debt on its books, whereas total liabilities are also quite limited.

At current pricing, Alantra has a market cap of ~€290M. The company’s net cash position (including investments) stood at €149.9M; assuming €50M are required to manage the overall business (which is unlikely considering some peers do have debt on the capital structure), that would leave ~€100M directly attributable to shareholders on top of the other existing businesses.

The asset management side of the business can be valued at €160M using a somewhat conservative multiple, especially if they manage to continue delivering on the operational front, realizing a solid IRR on their funds). The minority interests accounted for using the equity method can be valued at book value, i.e., €80.9M as of Q3-end.

Finally, we have the investment banking side, which we believe should be worth around 10x normalized earnings. Estimating what normalized earnings are on this side of the business is no easy feat, but the number likely stands at around €15M-€20M (~€17.5M at the midpoint, for a total valuation of around €175M).

Napkin Valuation

Keeping the accounts very simple for once, the valuation on a napkin would be as follows.

• €100M in net cash
• €160M for asset management
• €80.9M in minority interests
• €175M for the investment banking outfit 

Total: €515.9M, or ~€13.49/sh for ~77% upside from current pricing.

Overall, we believe these estimates are likely on the conservative side, especially considering the fact that when the market turns, sentiment will likely improve, potentially leading to higher multiples and thus overall valuations/pricing.

The main risk we see at current pricing is significant opportunity cost if the recovery on the investment banking side of the business is delayed further into the future, since, in my opinion, that is the most obvious catalyst. Management could also sell one of their minority stakes at solid pricing and declare a special dividend with the net proceeds or execute a tender offer (at current pricing we favor share repurchases, but trading volume is so anemic it would take a while to repurchase a meaningful number of shares, so a tender offer seems more appropriate).

Conclusion

Alantra is trading at a heavily discounted valuation despite being a solid operator with a good track record. Downside from current pricing appears limited barring a black-swan event, but upside is contingent on an improving backdrop for the investment banking side of the business (especially on the mid-market).

The asset management outfit remains a key value driver for the company, and continued growth on that business is contingent on solid performance on their funds (both public and private),

The IRR since inception has been remarkably solid (especially considering how the Iberian market has fared over the past decade).

Overall, we believe it is the right time to do our homework and analyse the company. The business is of high quality, and the management is aligned. Moreover, as we’ve already seen, it is trading at a very low valuation. We believe the main risk is the opportunity cost, as the market may keep it trading in this range if the M&A recovery doesn’t materialize. However, in the medium to long term, it is a company that should deliver significant returns. We have opened a small initial position and are monitoring it to build a full position once the M&A recovery becomes more evident.

 

 

Annex:

Insider Ownership

• Santiago Eguidazu Mayor. Executive Chairman. 17.489%
• José Antonio Abad Zorrilla. Board Member. 7.155%
• Jorge Mataix Entero. Board Member. 7.131%