Italian merchant bank begins direct PE investment

In the first quarter of the year, 4,218 Italian firms went bankrupt according to financial newspaper Il Sole 24 Ore; a 13% increase on the same period in 2012. Italian businesses are struggling. Yet turnaround investments are conspicuously absent in Italy, with just seven such investments in four firms last year with a deal aggregate of €11m, according to Aifi.

On a European scale, the industrial sector has seen the greatest number of turnaround investments in the past five years. And given that Italian industry is characterised by clusters of small- to medium-sized niche firms, which are usually not large enough to compete on an international scale, the sector seems badly placed to weather the domestic economic crisis and rising global competition. But they may be about to be thrown a lifeline.

"Almost half of all industrial manufacturing firms with a turnover of €50m-1.5bn need either financial restructuring or a vastly improved business model," explains Francesco D'Antonio, private equity senior manager at Italian merchant bank Mittel Group. "Around 20% of them need a real restructuring process - that's about 1,000 firms in the manufacturing sector alone," he adds.

Italy's industrial sector has been thrown a lifeline by a local merchant bank

Consequently, Mittel Group has decided to readjust its private equity activity. Mittel Management will act as a general partner and advisory firm, and has just launched two proprietary private equity vehicles. One vehicle, Rexelera, has a €300m target and will make turnaround investments of €20-30m in the manufacturing sector.

The vehicle will be managed in partnership with Roland Berger Strategy Consultants, who will provide fundraising guidance as well as strategic advice for the turnaround of target companies. The adviser may also provide temporary staff to work within a target company as restructuring officers.

The second vehicle has a €100m target and will make growth capital investments of around €7-10m in mid-cap firms in north east Italy. "We are launching these two initiatives together because they are related in a way: those that get turnaround investment will need to grow internationally, as will those that will be backed by the expansion capital fund," says D'Antonio.

Leading by example
Lending the clout of reputation to the cause, Mittel Management hopes to reassure and attract foreign investors. "We are mainly targeting international investors," says D'Antonio. "They like our business idea, but they are worried by the political situation. But if they trust us, we mitigate the risks that are perceived."

Having historically invested on a deal-by-deal basis in a selection of distressed firms and acted as a fund-of-funds in several indigenous vehicles, the change in direction of a prestigious institution is significant. And hopes are high: "We are moving very quickly," explains D'Antonio. "We hope to hold a first closing in the next six to seven months."

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