ITALY: The private equity market picks up pace

After a slow start to the year, the private equity market in Italy is now inspiring greater confidence amongst investors…Over the course of 2002, the Italian private equity market reinforced its standing as one of the five largest European markets. For the third consecutive year, the total equity invested was above €2bn, with funds raising around €1.9bn. Last year also saw a consolidation of the trend towards larger-value buyouts. This year, however, the Italian private equity market has been plagued by the similar economic difficulties to its European counterparts, with the value of private equity investments in the country falling sharply in the first half of 2003. Whereas the volume of investments is stable compared to the same period in 2002, the actual value of investments has fallen by some 45%. This drop in value during the first half of 2003 is probably attributable to the significant reduction in the number of mega-deals carried out during this timeframe. Italy’s annual investment in private equity as a percentage of GDP (around 0.2%) still remains significantly under par when compared to the UK and continental Europe. Nevertheless, this figure belies the future potential of the market and should not detract from the outlook for 2004.

Bigger buyouts

In terms of buyout activity, 2002 saw 26 buyouts with a total value of €4.03bn, of which the largest was the €1.015bn buyout of Galbani, the cheese and meat producer, led by BC Partners. In 2001, there were 11 buyouts totalling considerably less at €575.2m, the largest being the €350m buyout of Ilpea-Holm, the manufacturer of plastic goods for the white goods, automotive and construction industries. To date, buyout activity in 2003 has been very encouraging, and continues to dominate the market, with a notable rise in both the volume and the value of buyouts since 2001. In fact, this year has already some highly significant buyouts to date, including the €5.65bn SEAT deal, Carlyle Group’s €1.6bn buyout of FiatAvio and Vestar Capital Partners recent acquisition of FL Selenia from Doughty Hanson for €670m.

International interest

A further positive sign for the industry is the increasing level of interest being shown in the region, in particular by players on the other side of the Atlantic who are seeking to increase their exposure to European private equity. Whilst several American firms already have offices in Italy, there are even more who are watching the country closely but have yet to establish teams on the ground. The Seat deal is a good recent measure of US interest, with the company having been the subject of a failed takeover bid by the American consortium comprising Kohlberg Kravis Roberts, Texas Pacific Group, and Blackstone Group.

Growing confidence

From the fundraising perspective, Italian firms have been subject to much the same pressures as other European firms who have gone to market this year. As the economic stranglehold has tightened, the due diligence process has inevitably become more protracted and more thorough. Many firms have also found themselves under pressure from their LPs to alter certain aspects of the LP agreement, such as key man clauses and transaction fees. However, leaving these operational irritations to one side, several firms have announced plans to raise sizeable funds, with Clessidra Capital targeting a massive €1bn and Investitori Associati aiming for €600m. The signs point to an encouraging outlook for the next year. Another encouraging development is the steady drip of foreign law firms setting up office in Italy. Any sign of interest on the part of the law firms, not normally noted for their altruism, can probably be taken as a fairly accurate barometer of confidence in the private equity industry in Italy. Many lawyers see the Southern European region as key to their expansion within Europe, and believe that Italy is a burgeoning dynamic market with clear potential for future development. Indeed, as the market picks up momentum, the number of foreign newcomers is only likely to increase as lawyers spot lucrative legal services opportunities. One of the latest entrants to the Italian market is the US law firm Dewey Ballantine, which on October 1 launched offices in Milan and Rome, together with an Italian desk in the firm’s London office.

Positive outlook

The Italian market holds a significant number of attractions for investors. It is seen as an exciting private equity market due to its profile of small- to medium-sized companies and family-owned businesses, which generate a demand for capital for expansion and to improve competitiveness. Furthermore, the industry has been through a phase of reorganisation in terms of its legal and fiscal structure following significant regulatory innovations which have been implemented over the past few years. Whilst these changes represented an upheaval for the industry at the time, they have now had the effect of removing barriers to investment and improving transparency. A recent example is the reforms in Italian tax laws, which have made it easier for foreign investors to include Italian closed-end funds in their investment portfolios without fear of being penalised by heavy taxes. As has been well-documented in the rest of Europe, the exit environment continues to be very difficult, and with the IPO market virtually closed up until now, trade sales have long been the only viable exit route. However, this year two Italian companies Trevisan and Isagro are planning to list on the Borsa Italiana, with two further firms, Meta and Hera already having successfully floated earlier in the year. With the general increase in fundraising and deal activity looking to set to be consolidated in the second half of the year, the outlook for the Italian private equity market is now more positive than for many months.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Send to  

• Topics
• Performance
• Southern Europe