Italian PE enjoys vibrant Q1 despite political uncertainty

The prolonged uncertainty that preceded and has followed Italy's latest inconclusive election has left the country paralysed by the lack of a government and has encumbered legislative development. Despite this, the country's private equity market saw activity intensify considerably in the first three months of the year.

According to Unquote Data, the first quarter of 2018 saw 24 buyouts inked in Italy, for an aggregate value of €4.5bn, a significant increase compared with only six deals totalling €841m in the previous quarter, and 15 for €1.1bn in the corresponding period of 2017.

Notably, seven of the 24 buyouts closed in the first three months of 2018 were relatively large deals, with a value of more than €150m each, including one mega-deal worth almost €2bn. Only two large buyouts were signed in the previous quarter, as was the case in the first three months of 2017.

Private equity buyers have become more confident about acquiring an asset and about their ability to develop and improve the business" – Nick Sealy, Baird

In terms of volume, the consumer sector remains the most active in the country for private equity buyouts, with 11 deals in the first quarter of 2018, followed by the industrial sector with eight. This included the aforementioned mega-deal for rail operator Italo, acquired by Global Infrastructure Partners for €1.98bn.

There was also a significant increase in buyouts in the tech industry, where three large deals were closed in the first quarter of the year, including Charme Capital's acquisition of OCS for approximately €210m. The rise reflects increasing private equity interest in technological innovation, confirming an upward trend that first emerged in 2017, as highlighted in the Unquote and Clearwater International Multiples Heatmap. According to the report, the TMT sector attracted the highest valuation multiples in Italy and the rest of southern Europe in 2017, recording average multiples of 12.5x.

SBO bonanza
In addition to a dynamic buyout space, there was strong activity on the exit side, with 16 divestments for an aggregate value of €2.5bn, compared with 13 exits worth a total of €867.5m in the corresponding period in 2017.

Despite the trade sale remaining the most common form of exit, there was also a rise in the number of secondary buyouts, which doubled to six from three in the previous quarter.

According to industry experts, this trend has proven particularly positive for Italian companies, which are benefiting from long-term management under private equity firms. A recent study conducted by PwC underlined that private-equity-backed companies have recorded better performances over the past decade, generating 5.7% higher EBITDA and 2.2% higher revenues compared with similar non-private-equity-backed businesses.

"The repeated handover of a company from a private equity firm to another GP allows the business to find an appropriately sized investor for each stage of its development," says Francesco Giordano, partner at PwC. "It not only guarantees high returns, but also helps improve the margins and performance of the targeted company in the medium and long term."

"Private equity buyers have become more confident about acquiring an asset and about their ability to develop and improve the business," says Nick Sealy, co-head of European investment banking at Baird, which worked on various Italian SBOs, including the recent sale of 21 Investimenti's Nadella to ICG. "They have also increased their focus on buy-and-build operations, which allow them to optimise the potential of the companies in their portfolio through strategic add-on acquisitions."

The beginning of 2018 has also been very positive for fundraising, with three fund launches and three closings, including Alto Partners' €210m vehicle, which held its final close in May.

"Despite the fact that fundraising in Italy remains a challenging exercise, things are rapidly improving," says Raffaele de Courten, founding partner at Alto Partners. "We have seen both institutional and private investors increasing their asset allocation to alternatives following the relatively recent sharp decline in interest rates."

Looking at the coming months, fundraising activity is expected to build on current momentum and intensify, with the launch of numerous new vehicles, as reported by Unquote in May. These include IGI's new €150m fund, Main Capital's €250m private debt fund, and two funds-of-funds managed by Fondo Italiano d'Investimento.

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