For the first time in 40 years, Portugal posted a budget surplus at the end of 2019. Driven by record tourism, a buoyant real estate market, strong exports and a burgeoning technology sector, the economy was expected to continue to grow at a stable rate in 2020. An impressive pipeline of M&A deals from strategic and private equity players and soaring interest from foreign investors were positive signs for the Portuguese market, which appeared on track to a steady economic recovery.
The outlook changed when the pandemic arrived in March 2020 and deal-making took a hit. The government was quick to act, as it announced the first list of restrictions when there were only around 80 confirmed cases of Covid-19 in the country. The nation entered a government-mandated lockdown not long after which lasted for two months.
As a result, Portugal received international attention and praise, and was cited as a good example of strong management of the health crisis. During this period, a large share of M&A transactions were put on hold or suspended. For the few deals that continued in unusual settings, special emphasis was placed on the due diligence of the operational and financial situation of the targets and their respective cash flows. Despite the fall in the volume of deals, the value of M&A rose when compared to previous years. Testament to this is the €4.1bn acquisition of an 81.2% stake in Brisa- Auto Estradas de Portugal by a consortium of bidders, which kept domestic law firms busy throughout the year.
Activity picked up again over the summer in industries that remained resilient, such as infrastructure and energy. Recognised as low-risk assets in times of economic downturn, these sectors look set to continue garnering interest from investors.
Furthermore, the global decarbonisation agenda and clean energy efforts have aided the rise of Portugal as a renewable energy hub in Europe. The sector has witnessed a significant boost in the last couple of years, with the most recent and extra competitive photovoltaic auction marking a new era of battery storage for the country. In addition, lawyers deem green hydrogen an exciting opportunity as the country published its national hydrogen strategy, which includes a €7bn investment by 2030 and efforts to decarbonise heavy transport.
Law firms' employment departments recorded high levels of engagement following the legislative changes introduced in the fields of labour and social security law as a response to the pandemic. The implementation of the simplified lay-off process raised many doubts among employers, who sought legal advice as legislation was amended and introduced on a daily basis. Lawyers commented that restructuring mandates are likely to increase in the second half of 2021 when the job retention scheme comes to an end.
The continued uncertainty about the evolution of the spread of the virus makes it difficult to assess the full impact of the recession. The OECD projected that Portugal’s GDP would shrink by 8.4% in 2020 before recovering by 1.7% in 2021. With tourism as a cornerstone of the economy, an effective vaccine will be required to speed up recovery.
Other challenges include a slowdown in the real estate space, which is likely to be impacted further by the vote that passed through the Portuguese parliament restricting golden visa investments in the Lisbon and Porto markets, aiming to redirect interest to other regions in the country.
The local legal market has been stable in the last few years, with a group of full-service firms taking on the majority of complex and cross-border mandates. Morais Leitão, Galvão Teles, Soares da Silva & Associados, VdA and PLMJ still dominate in high-end transactions and deals, while Iberian firms Garrigues, Uría Menéndez – Proença Carvalho, Cuatrecasas and Gómez-Acebo & Pombo demonstrate strong credentials in domestic matters.
International outfits Linklaters, CMS and DLA Piper ABBC are also active in Portugal. Other strong players include Sérvulo & Associados, Abreu Advogados - which has strengthened its teams with key lateral hires in recent years - and SRS Advogados, that merged with AAA Advogados, founded by Gabriela Rodrigues Martins and Dulce Franco.
In other interesting recent developments, PLMJ appointed its second managing partner, Bruno Ferreira, following the retirement of founding partner José Miguel Júdice. PRA-Raposo, Sá Miranda & Associados, Sociedade de Advogados SP RL incorporated law firm José Manuel Mesquita & Associados, while Antas da Cunha Ecija merged with Vieira Advogados.