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ITALY - Market remains strong despite downturn

Francinia Protti-Alvarez
12 November 2009

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Speaking at the unquote" Italia private equity congress, Mara Caverni of PricewaterhouseCoopers argued that the Italian private equity market remains in good health despite the big declines witnessed in the last year, emphasising that "activity has, in comparison to its European counterparts, fared relatively well".

Notwithstanding this cautious optimism, there was a general consenus that the last 18 months have been tough for everyone. The debt scarcity has resulted in a reduction of dealflow and few deals being closed. Italy has seen a dramatic drop from the record EUR 5.8bn invested during 2008, with projections for 2009 putting the figure below the EUR 2bn mark.

Indeed, while there are now signs of recovery, there were warnings that the next 12 -18 months will also remain difficult. This will likely result in an increase in the rate of attrition, though according to Andrea Bonomi, chairman of Invesintdustrial, this could be good for the long term health of the market. "The reduction in the number of players means that those that survive to come out re-invigorated and with a new set of skills and enhanced experience".

There were familar criticisms of financial engineering as a method to achieve large returns, with greater emphasis being placed on the value of industry-specific knoweldge. "Industrial expertise is especially relevant when you consider the role it plays in the active management of portfolio," stated Vittorio Terzi of management consultancy McKinsey. Claudio Sposito, chairman of Italian buyout house Clessidra, added that increasing scrutiny was being placed on how investments are managed. "Valuations are inherently a reflection of the portfolio management," he noted.

As for exits, obviously the business-end of the investment cycle, most sounded a note of caution about prospects for 2010. There was, though, general agreement that prospects have improved - particularly in relation to public markets. "Volatility has decreased and we are seeing a growing trend in the number of IPOs, most notably in the Far East but moving to North American and now slowly reaching Europe," commented Massimo Capuano, CEO of La Borsa. Capuano also reminded the audience that over the last three years, 40% of the IPOs originated from PE-backed firms.