Sponsored Feature

Family Owned SMEs Are Portugal’s Best Kept Investment Secret

C2 Capital Partners
Sponsor


Portugal is experiencing a remarkable economic recovery, driven by a strong resurgence in tourism and a supportive business environment.

Despite a slowdown in GDP growth after peaking in the first quarter of 2022, the country remains on a robust growth trajectory, with projections of 2.4% in 2023 and 1.8% in 2024.

These growth rates surpass those of northern European countries, positioning Portugal as an enticing destination for investors seeking attractive returns.

The backbone of the Portuguese economy is its thriving SME sector, which accounts for an impressive 99.9% of all enterprises in the country. These SMEs are crucial in driving economic growth, innovation, and employment.

According to the European Innovation Scoreboard 2023, Portugal boasts a higher share of in-house business process innovators (20.7%) compared to the EU average (16.5%), indicating a significant pool of potential investment targets.

Despite the vital importance of SMEs, the Portuguese private equity market remains underdeveloped, presenting a unique opportunity for savvy investors.

With a considerable supply of investment-ready businesses and relatively low demand from competing investors, those who enter the market now can achieve superior margins and returns on their investments.

C2 Capital Partners has ideally positioned itself to seize this opportunity through its dedicated fund, the C2 Legacy Buyout Fund, which invests exclusively in Portuguese SMEs.

Dario Montagnese is the Operating Partner of the C2 Legacy Buyout Fund and currently leads fundraising and investor relations.

The fund employs a sector-agnostic, opportunistic approach, focusing on identifying and investing in high-potential family businesses where the founder is approaching retirement age without a clear succession plan.

By targeting these businesses, C2 Capital Partners can acquire them at attractive valuations and implement strategies to unlock their full growth potential.

Several compelling reasons make now the optimal time to invest in the Portuguese economy, particularly in family-owned SMEs:

Demographic shift: As the baby boomer generation reaches retirement age, a large number of family-owned businesses are becoming available for investment.

This trend is particularly noticeable in Portugal, where many successful SMEs are led by founders who are now looking to exit their businesses. Investors who act quickly can exploit this demographic shift and acquire high-quality assets at attractive valuations.

Underdeveloped private equity market: The Portuguese private equity market is still in its nascent stages, with venture capital expenditures amounting to only 43.5% of the EU average, as per the European Innovation Scoreboard 2023.

This relative lack of competition among investors translates into an ample supply of investment opportunities relative to demand, enabling investors to negotiate favorable terms and achieve higher margins on their investments.

Strong economic growth: Southern European countries, including Portugal, are currently experiencing higher economic growth rates than their northern counterparts.

Portugal’s GDP per capita (PPS) stands at 24,800, lower than the EU average of 32,600. However, the country’s economy is growing at a faster pace, with an average annual GDP growth rate of 4.4%, surpassing the EU average of 3.3%.

This solid economic growth creates a favorable environment for businesses to expand and thrive, enhancing the potential returns for investors.

Supportive government policies: The Portuguese government has implemented several initiatives to attract foreign investment and support the growth of SMEs.

For example, the Portuguese Golden Visa program offers residency to investors who make a significant investment in the country, including in venture capital funds such as those managed by C2 Capital Partners.

Portugal’s tax regime is also competitive. The corporate tax rate is 21%, which is lower than the EU average of 21.9%.

The C2 Legacy Buyout Fund is exempt from taxes on dividends and capital gains it derives from investment activity, and its distributions to investors (both capital gains and dividends) are exempt from taxes. 

Skilled workforce and innovation potential: Portugal has a highly educated and skilled workforce with a population that values lifelong learning. The country ranks above the EU average in several key innovation indicators, such as foreign doctorate students (192.3%), government support for business R&D (163.1%), public-private co-publications (148.3%), and broadband penetration (141.1%).

This strong focus on education and innovation creates fertile ground for businesses to develop new products, services, and technologies, enhancing their growth prospects and potential returns for SMEs. This translates to solid returns for those who invest in them.

Diversification benefits: Investing in Portuguese SMEs allows investors to diversify their portfolios geographically and across sectors. By allocating capital to various businesses operating in different industries, investors can mitigate risk and potentially benefit from uncorrelated returns.

As the Portuguese economy continues to grow and mature, the potential for exits through strategic acquisitions or public listings will likely increase, providing investors with multiple avenues to realize their returns.

The opportune moment

The confluence of a robust economic recovery, a vibrant SME sector, an underdeveloped private equity market, and supportive government policies makes now the ideal time to invest in the Portuguese economy, particularly in family-owned SMEs.

By investing through C2 Capital Partners’ fund, investors can gain exposure to this attractive opportunity while also obtaining the Portuguese Golden Visa, a valuable residency benefit.

Investing in Portuguese SMEs presents a compelling opportunity for investors seeking to capitalize on the country’s growth potential.

As the saying goes, “the early bird catches the worm,” and those who act now to invest in the Portuguese economy are well-positioned to reap the rewards in the years to come.

To know more about C2 Capital Partners’ fund and how to qualify for the Portuguese Golden Visa through a unique investment opportunity, contact us directly at dario.montagnese@c2capital.pt or through our website.