On the other side of the peak

The total value of private equity activity in Italy soared in the first half of 2008, but by the end of the year deal-doing was largely off the agenda. Reporting from Milan, Andy Thomson asks what happens next

As Christmas approaches, Milan professionals traditionally vacate the city en masse and head to nearby mountain ranges for a week or two's skiing. This past season, many found themselves able to extend their holiday on the slopes. With economic hardship biting, some local companies were reported to have locked up their premises in the first week of December and not reopened until the second week of January.

With portfolio companies to nurse through hard times, private equity firms are not without things to keep themselves busy. Nonetheless, it was as quiet a run-up to the festive period as many GPs could remember, with fundraising and new deal prospects slowing markedly. “The market came to a complete stop by the end of November,” recalls Francesco Sironi, managing partner at mid-market private equity firm BS Private Equity.

If that was true, however, it did flicker back to life just before Christmas when Bain Capital of the US acquired 80 percent of Italian business information company Cerved alongside Milan-based Clessidra, which purchased the remaining 20 percent. The deal was reportedly worth around €550 million, including a €275 million syndicated loan from BNP Paribas, Intesa Sanpaolo and UniCredit Market and Investment Banking.

Prior to that, there had been some other bright spots amid the deepening gloom. In November, London-based Barclays Private Equity and Bahrain's Investcorp completed the €800 million purchase of Italian vending machine maker N&W Global Vending in a secondary buyout from Argan Capital and Merrill Lynch Global Private Equity. Notably, the deal included some €600 million of debt finance provided by a total of eight lenders.

However, Alessio Santarelli, a manager at Barclays Private Equity in Milan who worked on the deal, says: “Putting large deals together is very complicated and the banks said that we just managed to get through the window before it closed. That sort of debt package will probably not be available for quite a long time. ”A few months previously, in August, Washington DC-based Carlyle Group acquired a 48 percent stake in Italian sportswear maker Moncler. The size of the deal was not disclosed, but a source told PEI it was around €417 million. This deal, too, is viewed retrospectively as part of the last wave of large private equity deals in the Italian market before credit issues took their toll. If such a wave is seen again, it will almost certainly not be for some time.

“The pool of banks backing Moncler's purchaser made it clear it was very lucky to get the money,” says Maurizio Bernardi, founding partner at law firm Pirola Pennuto Zei & Associati – Agnoli Bernardi & Associati, who advised Moncler shareholders on the deal.


Announcement date Deal value Number
by year ($m)
2004 4,769 36
2005 8,274 68
2006 9,817 68
2007 6,697 54
2008 11,688 54
Total 41,245 280


Announcement Deal Status Target Acquiror Acquiror Deal Value
Date Nationality ($m)
29-May-08 Completed Weather Investments (10%) Apax Partners; United Kingdom 1,724
TA Associates;
Madison Dearborn Partners
11-Mar-08 Pending Sintonia (14.3%) Government of Singapore Investment Singapore 1,537
08-Mar-08 Completed Giochi Preziosi (52%) Clessidra; Italy 1,446
22-Aug-08 Completed N&W Global Vending Investcorp Bank; Italy 888
Barclays Private Equity
16-Jun-08 Completed Guala Closures DLJ Merchant Banking Partners; Italy 867
Intesa Sanpaolo
03-Apr-08 Completed Compagnia Italiana Forme Changsha Zoomlion Heavy Industry China 798
Acciaio Science & Technology Development;
Goldman Sachs;
Mandarin Capital Management;
Hony Capital
23-Dec-08 Pending Centrale dei Bilanci (92%) Clessidra; Italy 688
Bain Capital Partners
06-Aug-08 Completed Moncler (48%) Carlyle Group United States 633
30-Jun-08 Pending Technogym (40%) Candover Investments United Kingdom 632
26-Sep-08 Pending Banca Monte dei Paschi di Siena Clessidra Italy 560
(Asset management activities)

Sattin also points to another type of deal opportunity that remains viable: namely, investing in M&A deals led by industrial groups. Private Equity Partners was involved in such a deal in November last year when it formed part of a consortium alongside fellow Italian private equity firms 21 Investimenti, IDeA Capital and MPS Venture which supported facility management services provider Manutencoop Facility Management in its acquisition of market rival Pirelli Real Estate Integrated Facility Management in a deal reported to be worth around €180 million.

Alioscia Berto, a senior principal in the Milan office of London-based private equity firm Doughty Hanson, believes that there are still good deals to be struck with high quality businesses. “Some companies will certainly be looking at buying competitors cheaply and, with credit unavailable and the stock market not viable, private equity is the most likely means of support. There are also good businesses whose balance sheets show an imbalance to short-term debt. Because they need to address liquidity issues, doing a deal may be a necessity.”

Where companies do feel pressure to strike deals, it potentially opens up another part of the market: namely, distressed deals and turnarounds. According to market sources, there is a notable buzz surrounding turnaround funds. The expected wave of distressed deals has not yet come to fruition, but it may only be a matter of time. Says Maurizio Bernardi: “There is not widespread restructuring today. But I would expect distressed situations to arise where there is a particularly high portion of debt relative to equity. I think a number of private equity-backed companies will have serious problems with covenants.”

Furthermore, it's not only portfolio companies that are expected to face turbulent times in the period ahead – many observers predict a consolidation of GP groups in the country. “Today it's almost impossible to do a fundraising unless your target amount is very small,” says Sattin. “Some funds have not performed outstandingly well, so there will be a shakeout and competition will be reduced.”

“Today it's almost impossible to do a fundraising unless your target amount is very small. Some funds have not performed outstandingly well, so there will be a shakeout and competition will be reduced”

Adds Tomei: “In my view, a gap has been created between the large domestic investors and pan-European franchises, on the one hand, and smaller players on the other. There are very few targeting the €400 million to €700 million range, where there is a lot of deal potential. Many of the smaller firms have not achieved enough of a track record and have not graduated, while some of those that were occupying the space have got succession issues.”

When the repercussions of the peak and trough have made themselves apparent, it is likely that the Italian private equity landscape will end up looking rather different at some point in the near future. For some that will be bad news while others will be able to hang up their skis and get to work on the new opportunities that lie ahead.

One of the latter will be Clessidra, the Milan-based private equity firm which is reported to be near a €1.5 billion final closing for its second fund. Says chairman and chief executive Claudio Sposito: “The 2009/10 period will be very tough, but also a very interesting vintage for a new fund. Excesses are being corrected and valuations are coming down. With the right degree of caution, there will be some great opportunities in adversity.”