Italian PE: an opportunity in crisis

The precise impact of the coronavirus on Italy and Europe’s wider economy are not yet known, but what is clear is that we are facing a deep recessionary environment. Consumer demand has slumped, and many industries have slowed to a crawl, some temporarily shutting altogether, with just a small number significantly benefitting from the nature of this unprecedented situation.

Italy was the first country in Europe to be hit by the pandemic and has been one of the worst affected, its death rate only overtaken by the UK in early May. The country’s industrial and economic heartland in the northern regions of Lombardy, Veneto and Emilia-Romagna – home to Italy’s world-renowned textiles, fashion, luxury goods and car industries, and which account for nearly half of the country’s GDP – was the epicentre of the outbreak.

Official figures show the economy contracted by 4.8% year on year in Q1, the steepest decline since the national statistics bureau ISTA began tracking the economy 25 years ago. This compares with a eurozone average fall of 3.8%. Government forecasts for the year, meanwhile, indicate a contraction of as much as 8.0% in 2020, while the International Monetary Fund (IMF) believes the figure will be 9.1% – again steeper than the 7.5% contraction it forecasts for the eurozone.

Consequently, buyout activity and M&A more broadly are going to take a significant hit in 2020 – that much is certain. The early signs of this can be seen in the first quarter of the year. There were 12% fewer deals than in Q1 2019, making it the weakest quarter in five years. It should be expected that Q2 will be an even more challenging quarter for dealmaking.

However, Warren Buffet’s “be greedy when others are fearful” maxim rings loud at this time. Private equity funds have an even greater opportunity to deploy capital than their corporate counterparts. High-quality assets will be available at attractive valuations and distressed companies in need of support will require capital restructuring. Much of this will come down to timing. Those PE managers that successfully raised funds prior to the global coronavirus pandemic are well-positioned to benefit from this sharp downturn in the economy; those who need to raise fresh funds find themselves in a more difficult position and may miss out on a buyout opportunity.

To read the rest of the report, including detailed 2019 M&A and PE breakdowns, a specific focus on Q1 2020 activity, and insights into the future of Italian M&A, click here

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