Foreign GPs step up for large Italian deals – panel

Ero Partsakoulaki and Cristiano Dalla Bona
05 August 2022

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Italy’s private equity market is seeing an increase in large deals often from international GPs that are able to find cheaper prices and opportunities across several sectors, according to experts at the Italian Private Equity, Venture Capital and Private Debt Association (AIFI) conference in London last month.

With larger funds to deploy, sponsors are looking at more sizeable deals, in many cases outside the sectors more traditionally associated with the country.

"Italy is not only a cultural superpower and home to world-renowned fashion brands and exquisite food products, but also a world leader in many important sectors – inter alia – construction and infrastructure, capital goods, design, pharmaceuticals, biomedical products and aerospace technologies," said Anna Gervasoni, a professor of economics and business management at LIUC University.

The Italian industrial scene is strong and witnessing the transformation of entire segments toward sustainability and digitalisation, AIFI chairman, Innocenzo Cipolletta, said. "We hope we can reach important results in the economy; the performance is strong across machinery, automotive and pharma," he said, adding however, that companies will need financial support. "Private capital is set to play an important role in increasing the size of these companies."

With the liquidity injected by the Italian government to implement the EU recovery plan, deal flow is expected to stay healthy, as discussed on Mergermarket's Italian Trendspotter last month. M&A activity in the country increased to EUR 51.3bn in 2H21, compared to EUR 35.6bn in 1H21, Dealogic data shows.

According to studies conducted by the AFI with PwC and Deloitte, acquisitions by international players have been growing steadily, with foreign GPs leading on two-thirds of the total cross-border deals targeting Italy, with around EUR 11bn in 165 transactions in 2021.

Just in the first half of this year, international players made 98 investments in Italy, with three out of four deals constituting buyouts, according to Gervasoni.

Examples from this year include Silver Lake's investment in Facile.it, in a competitive process that saw the winning offer value the price-comparison website at a reported 20x EBITDA, and Bain Capital's acquisition of sports graphics and data provider, Deltatre.

However, the country is entering a new unstable geopolitical chapter. The forced resignation of prime minister Mario Draghi, which opened the way to a new leadership election in coming months, has brought uncertainty too on the economic front.

Italy's political crisis has weighed on the execution of ITA Airways' sale, with the auction on hold for the time being, as reported by Mergermarket. Market uncertainty caused by the war in Ukraine was already hindering sale processes earlier in the year. The sale of Attestor-backed Ferroli, an Italian heating systems provider, has reportedly being delayed since March due to macroeconomic factors.

Private capital's role and local presence
Looking ahead, the increase in distressed equity investments could become another source of dealmaking. "The aid that companies received from governments during the first years of the coronavirus pandemic will gradually come to end and there will be a lot of financing to be done," said Paola Tondelli, the head of UTP and turnaround funds at illimity SGR.

In order to bring Italian companies' level of leverage back to 2019 levels, she says around EUR 4bn in investments will be needed. "Although entrepreneurs are reluctant to give control of the companies, when under distress, they will have to, so investing in private equity specialized in turnaround funding is a good opportunity for returns, as well as a way to support the Italian economy."

Italian regulators and industry leaders are busy trying to bridge the gap between private and public markets. According to Turin-based investment bank Cassa Depositi e Prestiti (CDP) chairman, Giovanni Gorno Tempini, there is a need to improve how capital markets work in Italy as well as to cultivate bigger funds in private equity to help foster a culture of opening up capital across family-owned enterprises. "These areas require attention and it is a journey that we consider cultural," he said.

Another way GPs have been trying to break into the Italian culture of investing is by setting up local offices. Last month, Apax Partners appointed Marco Conte as the head of Italy, with the aim to enhance the French sponsor's presence in the country four years after launching its operation there. Apax plans to accelerate its activities in the local market, seizing opportunities in the consumer, healthcare, services and tech and telecom (TMT) sectors, as reported by Unquote. Deutsche Beteiligungs AG (DBAG) also announced the opening of its Italian office in September 2021, while EQT opened an office in Milan in 2019 to strengthen its presence and support its investment activity in Italy.

"Geography and proximity are important because you invest in a real economy, and it's important to be in the market," said Gervasoni from LIUC University.