Private equity set to take centre stage in Italy

The Italian private equity and venture capital industry seems set for a change. Last year, as the banks became less willing to provide credit and more concerned with their own balance sheets, the number of buyouts supported by debt fell. This unwillingness to lend has resulted in a heavier focus on small- and medium-sized target companies within the Italian PE industry. The flurry of mid-market activity completed by the government-backed Fondo Italiano d'Investimento, particularly busy in December when it completed five deals in just over a week, reflects this.

However, the banks' unwillingness to lend as a means of boosting their own capital levels is likely to have a transformative effect on the country itself. The Italian business landscape is characterised by family-run SMEs.
Indeed, in 2011, family and private vendors were the greatest source of buyouts in Italy, accounting for 40% of the total, according to unquote" data.

Family matters

The traditional centrality of the family within the management though has meant that such companies have been reluctant to relinquish control to potential PE outsiders. But as institutional austerity and regulation tighten, PE looks set to become an ever-more viable option for Italian family-run companies seeking to expand and compete with international players in 2012.

"Moreover, family-owned companies often face the problem of generational change," according to Anna Gervasoni, general manager at the Italian Private Equity and Venture Capital Association AIFI. "These investments frequently represent the only opportunity to maintain headquarters in Italy and help to consolidate the role of the Italian managers leading them," she adds. As the Italian youth turns away from established family-run businesses to embrace innovation, PE looks to be a source to sustain the traditional enterprises that have long been the backbone of the country.

What's more, at the lower end of the market, venture investments look to become more frequent as the start-up scene grabs government attention. Mario Monti's focus on innovation as part of his Grow Italy liberalisation package includes facilitating SMEs' access to venture capital funding. Moreover, the government is currently defining its national programme to complement the EC's Digital Agenda, which aims to double the current percentage of retail sales completed online from its current 3.4% by 2015. Perhaps a heavier focus on venture will feature in the national agenda.

Hot off the press

An increased interest in the venture and start-up scene is discernible in the Italian press at the moment, reflecting Monti's mission of modernisation. Incubator spaces are receiving wider coverage in the columns as a means of creating an ecosystem that fosters innovation. The importance of these spaces is slowly being recognised in a country that seems to epitomise the pan-European criticism of Nicolas von Bülow, partner at Clipperton Finance: "European Countries and the EU have not implemented enough cluster strategies with a focus on helping new ventures become world-class companies, we have instead worked too much on polishing old businesses."

Venture capital is fast becoming a governmental buzzword as it looks to revolutionise the landscape of the Italian business market, somewhat stagnated by tradition. Many industry players have vocalised the need for a shake-up to ignite innovation. Following this year's below-average results, perhaps Italy may see an improvement in its position in the EU¹s innovation ranks next year. While the Italian financial drama seems set to continue, perhaps PE and VC may step out of the wings and into the spotlight.

 
This article is an extract from the latest Unquote" Analysis, out this week.

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• Topics
• Southern Europe
• Italy