Italian private equity's 2012 highlights

Looking back over the last year reveals some interesting shifts in the Italian private equity market. State-backed funds have shaped the landscape considerably, buyout deal volume has continued its consistent year-on-year recovery since the 2009 nadir and a couple of notable exits have occurred. However, overall deal value has fallen compared to 2011, but given that three mega-buyouts took place in 2011 this is of no surprise.

State-backed funds anchor the industry – "We have at least three tools that are directly or indirectly backed by the government, but they are private equity funds, with a private equity structure and regulations. I think there is a lot of focus on that," said Andrea Montanino, director general of the Italian Treasury, board member of Fondo Italiano di Investimento and F2i, and member of the Why Not Italy? initiative, in an earlier interview with unquote".

The eldest of the state-backed private equity funds is F2i, a national infrastructure fund with €1.85bn on the books. The fund is the largest country-specific infrastructure fund in the world and the largest private equity fund in Italy.

In July 2011, the Italian government launched Fondo Strategico Italiano, a €4bn fund that backs Italian businesses generating revenues of more than €240m. Despite launching in 2011, 2012 was the year the fund really made its presence known, bursting onto the scene with maiden investments totaling €650m. Deal volume for that quarter increased eightfold on the previous quarter, revealing a marked imprint on the national landscape.

But the market mover has been the Fondo Italiano di Investimento, the smallest but most active of the three funds. The vehicle backs Italian companies with a €10-250m turnover and made its first investment in December 2010. The fund was the most active investor in Italy in terms of deal volume last year, according to unquote" data.

Investindustrial nears €1.25bn hard-cap and sells Ducati – In April 2012, Investindustrial revealed its proximity to the €1.25bn hard-cap of its fifth fund, just five months after PPMs were sent out. The GP's sale of Ducati to Audi will no doubt have helped smooth the fundraising path. The deal, thought to be worth just under €900m, saw the GP enjoy a 3x money multiple, the last in a hat-trick of recent profitable exits following the sale of Permasteelisa to Japanese industrial buyer JS Group for €573m, equating to an IRR of 73% or 3x multiple, and the sale of Italmatch Chemicals to a Chinese investor for a 3.6x multiple. However, despite the positive signs earlier in 2012, the final close expected over the summer is yet to be reported.

Why not Italy? launches – In May last year, the investment community took matters into its own hands with the launch of Why Not Italy?. The group unites veterans of the Italian private equity industry, each of whom has at least 20 years' experience, in order to extol the virtues of investing in the Bel Paese. Members include Investindustrial founder Andrea Bonomi, the founding partner of Clessidra, Claudio Sposito, and Nino Tronchetti Provera, the founding partner of environmental investor Ambienta. The group is led by Fabio Sattin, founder of Private Equity Partners and a professor at the University of Bocconi.

Realising that Italy suffers from an image problem on an international level, the group is focused upon the production of objective research, which highlights the major challenges the country faces as well as underlining the advantages it offers. "From our point of view, it is very strange that people confuse the Italian situation with Greece, where the GDP is so low," Sattin told unquote" in 2012. "Our GDP is actually level to that of the UK, but not Greece. That is a very basic fact, but I think people forget it."

Permira sells Valentino to Qatari investors – In July, Qatari investment group Mayhoola bought Permira's luxury fashion brand Valentino, following the company's successful turnaround and a return to positive EBITDA in 2011. While the exact price remains undisclosed, the figure is widely reported to stand at around €700m. With the firm's consolidated EBITDA for 2011 standing at €22m, Permira appears to have raked in a 32x money multiple.

The deal saw the Qatari investor buy Valentino and the M Missoni licence business, while MCS Malboro Classics was carved out of Valentino and remains under the ownership of Permira's Luxembourg-based holding company Red & Black, which will continue to own a majority stake in Hugo Boss.

Permira bought a 29.6% stake in Valentino in 2007, and later continued the acquisition of the company from minority shareholders, resulting in its eventual delisting. In 2009, the GP completed the recapitalisation of the firm, reducing its debt by around a third to €1.5bn and committing new equity. Reorganisation of the group concluded with the separation of the business carried out by Valentino Fashion Group and Hugo Boss, which both continue to be owned by R&B, albeit separately.

The government introduces new rules for VC – "There is an effort to support private equity and general capitalisation of Italian firms through market instruments," said Andrea Montanino last year. "The government passed a law on venture some months ago to attract investment. There is now no capital gains taxation when investors invest in venture capital funds. This is another important action," he added.

Continuing what began at the start of 2012, Italian VC Principia has recently been in talks with the Italian minister for economic development Corrado Passera, who consequently proposed new legislation based on the recommendations of the VC. "Italy has been behind in terms of venture capital for a long time. But we will start to see results of the changes introduced by the Ministry of Economic Development as soon as 2013," said Andrea di Camillo, managing partner at Principia, last month.

The report established by the Task Force on Start-ups and managed by Principia suggests a dedicated fund-of-funds for venture capital with the government acting as an anchor investor and the Fondo Italiano di Investimento as manager. Of particular interest to the start-up scene is the report's proposal for a seed capital fund, capitalised by the state and institutional investors, to provide liquidity at the most critical time in a company's lifespan.

"An important area of attention for this decree was helping start-ups to get labour and consulting in exchange for equity during their first four years," explained Davide Turco, director of Atlante, the venture capital arm of Intesa SanPaolo. "This was an important step, as the previous administration's fiscal and labour law did not encourage stock options or equity."

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