Navigating the market: Insights and Projections from Bluebull’s industry experts

We had the honor of interviewing Joaquín Durán – Founding Partner – and Alfonso Díaz – Director – of Bluebull. 

Bluebull is the first data-driven investment bank created to empower innovators through specialized financial advice and bring real value to entrepreneurs and their investors beyond transactions.

Below we share a conversation with two industry experts who have shared with us their analysis of what 2023 leaves us with and what we can expect for this year. 

Endeavor: What is your assessment of the market’s performance this past 2023?

Bluebull: In 2023, the M&A and fundraising markets faced significant challenges due to prevailing economic uncertainties and increased interest rates. The heightened economic uncertainty deterred potential investors and led to a more conservative approach to acquisitions. 

Additionally, the impact of increased interest rates added a layer of complexity, influencing investment decisions and contributing to the subdued Performance.

Furthermore, market headwinds, including decreased buyer appetite, have led sellers to wait for more favorable conditions, at least in the case of those who could. 

This has led to a significant number of high growth companies having to adjust to a cash-strapped reality and more modest growth figures and KPIs, ultimately resulting in a significantly lower number of fundraising efforts or smaller-than-expected round sizes.

From an M&A perspective, the reduction in available funding has shifted the market to become more favourable to buyers, with less competition, more scrutiny over assets and a significant part of the M&A activity turning to a more opportunistic nature. A good indicator of the decrease in volume is that Private Equity exits are down 30% YoY.

Endeavor: What would you highlight as the most positive and the most negative aspects of the past year?

This has led to a consolidation of sorts, with financially healthy assets overcoming less careful competitors and well positioned to scale in the near future. On the flip side, the most significant negative aspect was the pervasive economic uncertainty, coupled with higher interest rates, which cast a shadow over deal-making activities. This has crippled the growth of some of the more capital intensive and innovative companies, which could add to significant technological breakthroughs.

Endeavor: How do you see the Spanish market evolving in 2024 in terms of investment rounds and company valuations (your perspective on round sizes, foreign investment, ecc.)?

Bluebull: Anticipating the evolution of the Spanish market in 2024, we are moderately optimistic about the volume of M&A transactions for a number of reasons:

• Dry Powder: European PEs have amassed approximately €340 billion in dry powder, providing them with significant capital to deploy in potential investments and acquisitions.
• Improving Macroeconomic Conditions: With inflation under control, rates are expected to decrease at a steady pace until the end of the year. Although we are unlikely to return to zero or negative interest rate environments.
• Fundraising and Delayed Exits: Private equity firms are actively fundraising and have postponed exits. This indicates that there is substantial capital waiting to be invested, which could fuel M&A transactions.

Despite these optimistic factors, the investment rounds and company valuations in the Spanish market will likely face several challenges:

• Valuation Multiples: Valuation multiples are expected to remain relatively stagnant, not reverting to the exuberant levels observed in 2021 and the first half of 2022. This trend is indicative of a more cautious investment climate and ongoing economic uncertainties.
• Slowdown in VC Deals and Fundraise Activities: The subdued economic environment may lead to a more conservative approach among investors, resulting in a slowdown in venture capital deals, fundraise activities, and overall exits. This could impact the pace and scale of investment rounds in the Spanish market.
• Fundraising Activity: Despite weak returns in venture strategies, the long-term prospects remain strong. There is potential for increased activity in VC fundraising, possibly exceeding the levels seen in 2023. This suggests that while there might be short-term challenges, the underlying strength of the venture capital ecosystem could support a rebound in investment activities.

Endeavor: What factor do you see as key and essential for better performance this year? Lower rates?

Bluebull: Lower interest rates are indeed identified as a key factor that could significantly impact performance in 2024, but this is considered within the context of risks to the current market thesis. 

Aside from that, and excluding geopolitical conflicts and politics, we believe that the real estate bubble in China will likely burst and lead the country to a similar financial crisis as the one experienced in Europe and the US in 2008. This will have a significant impact on raw material pricings, which could impact significantly gross margins from companies with established supply chain operations in Asia. It will also affect negatively those companies with an exposure to the country.

Endeavor: What do you see as the star sector or sectors for 2024? Trends to follow?

Additionally, cybersecurity is expected to remain a star sector in 2024. With the persistent threat of cyber attacks and an increasingly digitized world, businesses and governments are likely to prioritize cybersecurity measures and regulation. This heightened focus on digital security is anticipated to drive continued growth in the cybersecurity sector, presenting opportunities for companies specializing in threat detection, data protection, and secure communication.

Moreover, with AI’s growing role in mechanical tasks, the demand for professional training and reskilling is expected to surge to adapt to a changing work environment. Thus Education Technology will remain a key trend in the near future.