On paper, Spanish and Portuguese organisations seem like good potential merger partners, but in practice they rarely get together. Cuatrecasas' Manuel Castelo Branco asks why

Since both Spain and Portugal joined the European Union and the eurozone, the Iberian Peninsula is undoubtedly an integrated area for economic, financial, historical, cultural and geographical reasons. Centuries of hard physical and financial boundaries and of dynastic annexations have been replaced by hard economic competition between people and companies from both sides.

One could expect that, following the step towards European integration, the Iberian markets would give cause to a significant wave of mergers between companies. But reality shows that, after more than 25 years, only one merger between Iberian companies has taken place, giving rise to an Iberian name and structured practice: Cuatrecasas Goncalves Pereira, the law firm in which I was one of the Portuguese founding partners and of which I am co-managing partner.

I will not bother you with the details of how and why our law firms (Cuatrecasas, from Spain, and Goncalves Pereira Castelo Branco, from Portugal) were merged. I will instead try to align some hopefully intelligible words about why such a significant market did not produce mergers, just acquisitions (mainly promoted by Spanish companies) or commercial expansion (allowed by the European passport).

Everybody knows that transnational or cross-border mergers are scarce. Recently, BA and Iberia tried, over several years, to arrive at terms and consideration had to be given to the tax, political and economical centres of decision-making to place their respective regional head offices before any agreement could be reached.

Almost eight years ago the formation of steel producer Arcelor was a result of a tri-national merger between Aceralia (from Spain), Usinor (from France) and Arbed (from Luxembourg), and ended up in the hands of the multinational Mittal in 2006.

Spanish and Portuguese companies looked to each other's markets with no intention of joining efforts and growth through mergers: they simply went through the straight route of acquisitions – a lot of acquisition and no merging – or the creation of affiliates or branches.

For the last 20 years I have been professionally involved in several attempts to merge Portuguese and Spanish clients, sometimes receiving a mandate from the Portuguese, at other times from the Spanish side. But up until now the only one that succeeded was the one in which I am personally involved. So, where is the problem?

The first problem is not original to Iberia but an endemic (or systemic) problem – mergers, namely the transnational ones, are difficult to finalise and require many conditions to be in place: economic and financial synergies; labour, tax, political and legal harmony; proper corporate governance; and suitable branding.

Another relevant issue, which is typically Iberian, is the size of the companies. I would dare to say that the ratio of comparable and 'mergeable' companies within Spain and Portugal is five times to 10 times – that is to say, Spanish companies tend to be five to 10 times bigger than their Portuguese sisters. Only when you divide the Iberian Peninsula into different regions and start comparing companies within their regional markets (like, for instance, a Portuguese-based company and a similar Catalan company) do you find some equality. I would not rule out the possibility of some regional companies joining efforts in the near future through mergers in order to compete with the concentration of the big players in Madrid.

When the size is not similar, the difficulty of merging two companies, instead of having one absorbed by another, is huge because of the difficulty in fine tuning the balance of power between managers and creating enough rights and protection for the minor shareholders.

Then there are the tax implications which, in the Iberian Peninsula, are particularly relevant because the Spanish Government is years ahead of the Portuguese in matters related to attracting and keeping company investors. During the last decade Spain has intelligently attracted investors to use Spanish vehicles for their national and international investments in such a way that they will have to think twice before deciding to exchange their Spanish company's domicile for another one located abroad, namely in Portugal.

As the rules now stand, any adviser on a merger between Portuguese and Spanish companies would advise the respective shareholders to choose Spain to domicile the new company, because of taxation on profits and dividends and the double taxation rules. As the capital issues to be agreed on a merger are usually domicile, exchange terms, corporate governance and branding, any future Portuguese shareholder would have to concede on one of them. That is not a good starting point for negotiation.

Finally there is the political syndrome – the excessive influence of the local governments in the strategic decisions taken, at least by the main heavyweight companies. In Portugal, the Government, either through golden shares (now in their final days at the death row), relevant shareholding or pure economic or political dominance, does have an excessive say on company decisions and/or shareholder strategy.

Mergers, in so far that they may require the head office to transfer to third countries or admit new non-aligned shareholders, are usually compared with alienation of the 'national centres of the decision'. The use, by politicians and opinion makers, of this old protectionist jargon has prevented many mergers from being stimulated.

But I still believe that in the near future and as soon as the respective governments create the appropriate tax, legal and political conditions it will be possible to add up the entrepreneurial skills, assets and establishments of Spanish and Portuguese business people and give rise to true and successful Iberian brands.

Manuel Castelo Branco is co-managing partner at Cuatrecasas Goncalves Pereira.