The Private Equity Market in Italy: Past, Present and Future

Overview


Past: Once Upon a Time

Thinking back to pre-pandemic times, it cannot be said that the Italian private equity (PE) and venture capital (VC) market was particularly flourishing or on the rise. Funding was decreasing compared to the trend of previous years, and the volume of investments reached a certain significance (totaling almost EUR 10 billion allocated to almost 450 companies) only if we also take into account any co-investors (not classifiable as PE and VC players), the financial leverage used for buyouts, and the activity of other parties (such as club deals, family offices, special purpose acquisition companies, asset managers and other investment vehicles) that invested alongside traditional investors.

The widespread impression among industry stakeholders, however, was not that the market was facing a contraction or was particularly hectic, but rather was simply tied too closely to the completion of few important transactions rather than following a regular trend.

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Following the H1 2020 setback due to government restrictions, funds have tended to focus on investments in more defensive and resilient sectors (such as technology, energy, pharmaceuticals, healthcare and agribusiness) and on the management and protection of portfolio companies. Consolidation processes (e.g., through add-ons to investee companies) and general injections of liquidity are all the rage. The amount invested is growing steadily.

Today, the time required to close deals has lengthened, and more sophisticated due diligence processes have been introduced, often with a focus on operations. Since the impact of the health emergency on companies has inevitably led to a contraction in margins (in terms of EBITDA) and an increase in debt impacting on capital strength, PE funds are looking with interest at the possibility of seizing an opportunity from this situation, using investment structures that are more complex than in the past (e.g., providing for minorities and for commitments with debt and semi-equity instruments), postponing the process of divestment and trusting in the recovery.

Future: Where to Put My Two Cents

By the end of H1 2021, we gradually began to glimpse a positive market outlook: the number of deals is sharply increasing. Leveraged buyouts and replacement transactions are becoming fashionable once again, mainly in the manufacturing, life sciences and healthcare, and IT sectors.

We are witnessing a significant increase in the size of investments (in particular with regard to transactions above EUR 100 million), yet with lower utilisation of equity for the financing (confirming the trend of involving commercial banks mainly through senior debt) and with little price divergence among sellers and acquirers (an adjustment price clause seems to be mandatory nowadays).

The market seems to be influenced by disruptive trends (e.g., online sales and tech innovations), especially in light of factors such as the spread of remote working, the return to the “green” agenda (which had been temporarily set aside) and the transition towards digital payment methods.

Trade journals and market players seem to be very confident about the growing trend. It remains to be seen whether the above-mentioned disruptive trends will be able to suit the needs of the market, or whether the market will inevitably be revolutionised by a new way of experiencing relationships and, consequently, business.

International Private Equity Market (IPEM) 2021 | Paris Edition

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