Italian entrepreneurs: Handing down or selling down?

"It's a very relevant topic in Italy, where around a quarter of businesses are owned or led by people who are over the age of 65," says Ambienta managing partner and founder, Nino Tronchetti Provera. "A lot of Italian companies were created between 1950 and 1970. We had the ‘miracolo Italiano', when the country went from a bankrupt one to one of the world's largest economies. The people who set up these businesses – and are mostly still leading those companies – are now often up to 80 years old."

As Tronchetti Provera explains, this can present issues whereby more experienced private business owners struggle to adapt to a rapidly changing business environment. "What's happened in the past 20 years – the pace of growth in emerging economies, the fact people are now connected all the time, or that people can run small businesses from anywhere in the world – it is completely different from their mentality."

This issue of ageing entrepreneurs is more of a challenge for Italian SMEs than assets being handed over to less capable younger generations, argues Tronchetti Provera. Entrepreneurs who have spent decades building businesses – in many cases spending more time on the road than at home – are highly unlikely to pass these on to people who are not capable, whether or not they are related.

"Some might promote their children to general manager," says Tronchetti Provera, "or give them an honorary title while, in reality, they remain the ones leading the company. The real issue is that they should be planning the transition and bringing management on board. If the entrepreneurs want the company to be sold, they are the ones who should lead the process." In this respect, Italian family-run businesses could do worse than turn to their German counterparts for inspiration, Tronchetti Provera says. German entrepreneurs are known for having a forward-looking attitude towards the introduction of new management and shareholders, in anticipation of retirement.

Family affair
The broader view of Italian entrepreneurs towards selling family-owned businesses has changed greatly in recent years, argues Stefano Iamoni, a founding partner at Consilium. Iamoni says factors such as social status or family politics are often less important than they used to be. "There always was a significant opportunity in Italy in this sense," he says. "But now we are seeing the emergence of the idea that you can sell a company without too much trouble. In many cases, the children are often better off as a result. They don't have to take over a company and lead lives that potentially make them unhappy; they can do whatever they like. Additionally, it's also logical from a financial standpoint in a lot of instances."

This attitude, it could be argued, became more prevalent throughout the financial crisis, with entrepreneurs reluctant to burden their offspring with businesses operating under testing economic conditions. As Consilium's managing partner, Roberto De Rossi, explains, these companies by their very nature are attractive propositions. "In general we look at companies with good fundamentals," he says. "In other words, businesses with good market share, significant exports, and companies that are operating in industries with potential for growth. We look to see where we can create value in those companies. With businesses that have traditionally been managed by entrepreneurs, we can introduce professional management teams and create value in that way. That is one of the options we have."

With the Italian domestic economy showing signs of returning to health, the SMEs most likely to benefit will be those with strong international operations. The relationship between private equity firms and ageing entrepreneurs will have a large part to play in creating those businesses.

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