For Italian M&A, a strong start to the year mitigated the impact of COVID-19

A handful of large deals struck early in the year provided a few bright spots for Italian M&A activity in H1 2020

A cluster of larger deals in early 2020 helped to put a shine on Italy’s M&A figures for the first half of the year. Despite the huge disruption caused by the spread of COVID-19 and the subsequent lockdown, the US$16.9 billion deal value for H1 2020 was in fact 21% above the value for H1 2019. Deal volume, however, was down 37% in H1 to 185 deals.


Activity plunged in the second quarter. Value in Q2 fell to US$3.9 billion, a 58% drop compared to Q2 2019; this was the lowest quarterly deal value since Q2 2010. With only 71 deals in the quarter, volume also fell 58%, the lowest point since Q1 2013. 

Private equity dip

Private equity-backed deals, meanwhile, have dipped in line with the trend in the global M&A market. There were 48 PE-related transactions (both exits and buyouts) in the first half, totaling US$5.2 billion. This represented respective drops of 37% and 9% compared to H1 2019.

The second quarter proved especially challenging for private equity with only 20 deals, the lowest quarterly total since Q1 2013, although Q2 deal value of US$2.3 billion offered some optimism, beating the totals for two quarters in 2019.

The technology and telecoms sectors attracted the largest amounts of private equity capital in H1. The largest PE transaction was the US$1.8 billion sale of computer services firm Ingegneria Informatica to Bain Capital. The deal—the third-largest transaction of H1 overall—was a secondary buyout, as Bain acquired the firm from Apax Partners and NB Renaissance Partners. The deal is pending approval from regulators. 

The second-largest buyout for the period came at the end of June with Telecom Italia’s sale of a 14.8% stake in Infrastrutture Wireless Italiane SpA (INWIT), its listed infrastructure unit, to a consortium led by Ardian for US$1.5 billion. The deal is pending approval, including golden power law sign off, but if cleared it will represent the largest investment in Q2 and the only deal worth US$1 billion or more during the period. 

Although private equity firms have paused during the lockdown, data provider Preqin estimates that global PE dry powder stood at US$1.5 trillion in June 2019. 

With large sums of capital to invest, private equity firms will resume dealmaking. The dynamics of the Italian market continue to present attractive long-term trends for buyout firms. More than a quarter of first-generation Italian businesses have an owner-manager who is at least 70 years old, according to Milan’s Bocconi University, providing a rich source of succession and transition capital deal flow for financial sponsors.

Sectors in focus

The largest Italian deal struck so far this year was in the financial services sector, with Italian bank Intesa Saopaolo bidding US$5.2 billion for UBI Banca to create Europe’s seventh-largest bank by assets, if shareholders and regulators sign off. 

The Intesa/UBI deal has also delivered the fifth-largest Italian deal of the year, as a result of Intesa divesting up to 500 branches to BPER for US$1.1 billion to mitigate antitrust concerns. These two financial services transactions made the sector the largest by value in H1, with total deal value of US$7.4 billion. This was a huge jump on the US$700 million financial services value figure for H1 2019.

Despite being among the sectors worst hit by the COVID crisis, the consumer sector was the next-largest by value, with US$2.9 billion worth of deals, primarily due to the purchase of a 30% stake in Italian supermarket chain Esselunga by private investors Marina Caprotti and Giuliana Albera, who now own 100% of the company after a US$2 billion deal. 

Ardian consortium’s bid for INWIT ensured that the TMT sector was by far the largest by value in Q2. TMT was the only sector to secure more than US$1 billion worth of deals in Q2, with total deal value of US$2 billion.

COVID takes its toll

The decline in deal activity comes as no surprise given the challenges Italy has faced in its battle against the coronavirus. Italy was the first European country where the spread of the virus accelerated, and the first country outside of Asia to implement social distancing and lockdown measures.

This has taken a toll on GDP growth and Italy’s stock markets, which in turn has put M&A on hold. 

According to the European Commission’s Spring 2020 economic forecast, Italy’s GDP is expected to fall by 9.5% this year. Italy’s benchmark stock market index—the FTSE MIB—has shed just under 17% this year, but was down by more than 40% at one point before staging a partial recovery.

Dealmakers targeting Italian transactions have faced further headwinds with the enhancement of golden power rules introduced by Italy’s coalition government, which expand the strategic sectors in which the state has power to block overseas investors from buying assets. The new rules, introduced after the COVID outbreak to prevent foreign buyers from acquiring prized assets on the cheap, extend existing powers and now cover deals in banking, insurance, healthcare and food security and most private equity deals for non-EU funds. These rules could weigh down M&A activity long after the battle against the coronavirus stabilizes. Prior to the crisis, cross-border M&A was a key contributor to dealmaking in the country, accounting for as much as two-thirds of Italian deal value in some years.

Hopes for recovery

As lockdown measures have lifted and business in the country has reopened, there are hopes that Italy’s economy can begin recovering. Challenges and the risk of further virus flareups remain, but the European Commission is forecasting an increase in consumer spending in H2 and a GDP growth rate of 6.5% next year. It is hoped that a government stimulus package of €750 billion—including the €55 billion “Relaunch Italy” program and a €200 billion government-backed loan guarantee scheme—will also boost the post-pandemic recovery.

As the economy rebounds and clearer picture of future earnings emerges, deal activity will return. There is already evidence of life in the market, with deals coming to market at attractive prices. Italian companies have been active in outbound investments, particularly in the pharmaceuticals sector where Angelini purchased ThermaCare’s global business rights (excluding North America) from GSK in a US$214 million deal in April and Menarini picked up US oncology drug developer Stemline Therapeutics in a US$642 million deal in May.

Italian dealmakers will be hoping for more of the same.

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