The current Italian macroeconomic picture is somewhat mixed. While the International Monetary Fund forecast Italy’s target GDP growth at 0.7 percent, just under Western Europe’s 0.9 percent, Italy’s economy minister Giancarlo Giorgetti has noted that, in a worst-case scenario, full-year growth would come in at 0.4 percent from the previous year if there is zero growth in the third and fourth quarters.
On the other hand, employment has stayed steady this year at 66.8 percent, with unemployment decreasing to 6.8 percent, according to Eurostat’s latest figures.
While employment figures may be stabilizing, public debt remains a significant concern, at around 140 percent of GDP. While the government is aiming for fiscal consolidation, interest rates (3.6 percent in September) and spending pressures—from factors such as the green transition and an aging population—are making debt reduction no easy task.
However, Italy's commitment to EU fiscal rules is expected to reduce medium-term fiscal and financing risks associated with the country's high debt levels.
Italian assets in demand
Although the macroeconomic background is somewhat unsettled, the country has seen rising levels of M&A in 2024.
In the first three quarters of the year, there were 867 deals valued at US$45.2 billion, increases of 5.2 percent and 106 percent, respectively, compared to the same period in 2023.
Mega and large deals in the technology, media and telecommunications (TMT), energy mining and utilities (EMU), and consumer sectors drove the spike in value.
At the higher end of the scale, EMU dominated the deal flow, accounting for eight out of the top 20 deals. Major transactions included private equity giant KKR’s US$3.2 billion 25 percent stake in Eni Sustainable Mobility in Q3; Vitol Netherlands Cooeperatief’s 100 percent acquisition of Saras for US$1.6 billion in Q1; and the closing in Q1 of Eni’s acquisition of Neptune from CVC, Carlyle and CIC, in a deal valuing the global Neptune business at US$4.9 billion.
In addition, the fourth quarter saw Italgas, Europe's largest gas distributor, pay US$5.8 billion for 2i Rete Gas. The deal is expected to spur further deal flow. Italian regional utility Ascopiave is considering making a bid for Italgas assets that may have to be sold if antitrust regulators approve Italgas’s acquisition of 2i Rete Gas. Ascopiave is also in exclusive talks with utility A2A to acquire additional gas assets. To fund the transaction, Ascopiave would likely have to sell its remaining 25 percent stake in the Estenergy joint venture with Hera.
The largest deal of the year took place in the TMT sector, with Swisscom's €8.6 billion acquisition of Vodafone Italia. This deal, pending regulatory approval, will create Italy's second-largest fixed-line broadband operator. In June 2024, KKR closed its acquisition of NetCo from TIM, a deal valued at up to €22 billion and signed in 2023.
The consumer sector also saw significant growth, with value for the first three quarters of the year rising to US$7.9 billion from US$4.8 billion in 2023. PE firm L Catterton's €1.4 billion acquisition of cosmetics brand Kiko Milano underscores the global appeal of Italian consumer brands and the lure of the “Made in Italy” mark.
As demonstrated by the KKR and L Catterton buyouts, private equity has remained resilient in the first nine months of 2024, despite difficult financing conditions. Activity—namely buyouts, secondaries and exits—has risen from 173 deals in 2023 to 188 in 2024. And value is up 20 percent, from US$15.1 billion to US$18.2 billion.
Indeed, according to Mergermarket, PE firms in Italy envision a further revival of the exits market as valuations narrow and pipelines grow.
One Italian sponsor noted: “The mood in the exits market remains stable, and there is a relatively large pipeline of exits pending and new deals coming in.”
Banking consolidation in the offing?
One of the most talked about and complex deals to arise in Italy this year involves UniCredit’s rising ownership of Germany’s Commerzbank. After buying a 9 percent stake in early September, UniCredit used derivatives to increase its stake to around 21 percent and has applied to the European Central Bank to acquire up to 29.9 percent. Few senior bankers in Frankfurt believed the government would allow UniCredit to get to this point. However, shareholders may now appreciate the offer in response to the Italian group’s capital position and reputation, which it has rebuilt through organic growth in recent years.
However, just as the deal started to take shape, there were reports of Commerzbank considering a defensive play to fend off its Italian suitors by offering to acquire a mid-size German bank, such as Hamburg Commercial Bank or Oldenburgische Landesbank.
Such a move could make multiple integrations a regulatory headache and put the UniCredit deal on the backburner. However, should shareholders push for the UniCredit deal, such a merger could arguably give credence to the idea that M&A can create cross-border banks in Europe capable of competing with US firms, and potentially lead to a wave of banking consolidation both in Italy and across Europe.
Another recent blockbuster deal involved UniCredit’s unsolicited US$10.5 billion voluntary takeover offer on Banco BPM, Italy’s third-largest bank. This proposed takeover has stirred controversy within the Italian government, which has indicated its intention to reserve the right to use its “Golden Power” legislation, which gives the government special powers to approve or veto foreign direct investments.
UniCredit’s offer follows Banco BPM’s voluntary takeover offer on Anima Holding, an Italian asset manager.
Outlook
Italy’s M&A and private equity market holds significant promise for the next 12 months, driven by robust sectoral opportunities in healthcare, technology, renewable energy, consumer goods and industrial manufacturing. The resilience and excellence of a vast array of Italian mid-cap companies continues to be on the radar of international investors.
Italian port infrastructure and renewable energy projects will likely be enticing for investors and PE funds. This could be spurred by the Italian government's National Recovery and Resilience Plan (NRRP), funded by the EU's NextGenerationEU program. The NRRP has earmarked €209 billion to investments in various sectors, including infrastructure, digitalization and green transition.
In addition, the strategic use of NRRP funds and ongoing structural reforms are likely to enhance the investment climate, albeit with some macroeconomic and regulatory challenges, such as the country’s protective labor laws and Golden Power regulations involving companies the government has deemed strategically important. The Italian government has become increasingly vigilant on Golden Power matters and has not hesitated to use its powers to restrict foreign direct investments in certain recent cases.
Despite the promising opportunities, the Italian regulatory landscape can be complex and difficult to navigate, with everything from mandatory consultations with unions involving cross-border deals to strict inheritance laws that could impact acquisitions of family-owned businesses.
Therefore, acquirers looking to capitalize on the opportunities in the Italian M&A and PE market should consider collaborating with local partners and focus on high-value sectors that have strong growth potential.
That aside, Italy’s bumper deal value in the first nine months of 2024 could be a promising sign for assets being prepared for the selling block in 2025, including Italy’s 3,600 private equity-backed portfolio companies. The Italian market has also seen the opening of a variety of new offices of financial sponsors with deal teams on the ground, which signals an increased interest in this geography.
Many portfolio companies will be looking to expand into new markets, but that could prove costly for those looking to do business in the US, where import tariffs as high as 20 percent are likely to be imposed.
However, cross-border deals in Europe and the US could prove fruitful for economic growth and M&A across a broad range of sectors.