Advisory Board

  • Cai Hongbin
  • Peking University Guanghua School of Management
  • Peter Clarke
  • Barry Diller
  • IAC/InterActiveCorp
  • Fu Chengyu
  • China National Petrochemical Corporation (Sinopec Group)
  • Richard J. Gnodde
  • Goldman Sachs International
  • Lodewijk Hijmans van den Bergh
  • De Brauw Blackstone Westbroek N.V.
  • Jiang Jianqing
  • Industrial and Commercial Bank of China, Ltd. (ICBC)
  • Handel Lee
  • King & Wood Mallesons
  • Richard Li
  • PCCW Limited
  • Pacific Century Group
  • Liew Mun Leong
  • Changi Airport Group
  • Martin Lipton
  • New York University
  • Wachtell, Lipton, Rosen & Katz
  • Liu Mingkang
  • China Banking Regulatory Commission (CBRC)
  • Dinesh C. Paliwal
  • Harman International Industries
  • Leon Pasternak
  • BCC Partners
  • Tim Payne
  • Brunswick Group
  • Joseph R. Perella
  • Perella Weinberg Partners
  • Baron David de Rothschild
  • N M Rothschild & Sons Limited
  • Dilhan Pillay Sandrasegara
  • Temasek International Pte. Ltd.
  • Shao Ning
  • State-owned Assets Supervision and Administration Commission of the State Council of China (SASAC)
  • John W. Snow
  • Cerberus Capital Management, L.P.
  • Former U.S. Secretary of Treasury
  • Bharat Vasani
  • Tata Group
  • Wang Junfeng
  • King & Wood Mallesons
  • Wang Kejin
  • China Banking Regulatory Commission (CBRC)
  • Wei Jiafu
  • Kazakhstan Potash Corporation Limited
  • Yang Chao
  • China Life Insurance Co. Ltd.
  • Zhu Min
  • International Monetary Fund

Legal Roundtable

  • Dimitry Afanasiev
  • Egorov Puginsky Afanasiev and Partners (Moscow)
  • William T. Allen
  • NYU Stern School of Business
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Johan Aalto
  • Hannes Snellman Attorneys Ltd (Finland)
  • Nigel P. G. Boardman
  • Slaughter and May (London)
  • Willem J.L. Calkoen
  • NautaDutilh N.V. (Rotterdam)
  • Peter Callens
  • Loyens & Loeff (Brussels)
  • Bertrand Cardi
  • Darrois Villey Maillot & Brochier (Paris)
  • Santiago Carregal
  • Marval, O’Farrell & Mairal (Buenos Aires)
  • Martín Carrizosa
  • Philippi Prietocarrizosa & Uría (Bogotá)
  • Carlos G. Cordero G.
  • Aleman, Cordero, Galindo & Lee (Panama)
  • Ewen Crouch
  • Allens (Sydney)
  • Adam O. Emmerich
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Rachel Eng
  • WongPartnership (Singapore)
  • Sergio Erede
  • BonelliErede (Milan)
  • Kenichi Fujinawa
  • Nagashima Ohno & Tsunematsu (Tokyo)
  • Manuel Galicia Romero
  • Galicia Abogados (Mexico City)
  • Danny Gilbert
  • Gilbert + Tobin (Sydney)
  • Vladimíra Glatzová
  • Glatzová & Co. (Prague)
  • Juan Miguel Goenechea
  • Uría Menéndez (Madrid)
  • Andrey A. Goltsblat
  • Goltsblat BLP (Moscow)
  • Juan Francisco Gutiérrez I.
  • Philippi Prietocarrizosa & Uría (Santiago)
  • Fang He
  • Jun He Law Offices (Beijing)
  • Christian Herbst
  • Schönherr (Vienna)
  • Lodewijk Hijmans van den Bergh
  • De Brauw Blackstone Westbroek N.V. (Amsterdam)
  • Hein Hooghoudt
  • NautaDutilh N.V. (Amsterdam)
  • Sameer Huda
  • Hadef & Partners (Dubai)
  • Masakazu Iwakura
  • TMI Associates (Tokyo)
  • Christof Jäckle
  • Hengeler Mueller (Frankfurt)
  • Michael Mervyn Katz
  • Edward Nathan Sonnenbergs (Johannesburg)
  • Handel Lee
  • King & Wood Mallesons (Beijing)
  • Martin Lipton
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Alain Maillot
  • Darrois Villey Maillot Brochier (Paris)
  • Antônio Corrêa Meyer
  • Machado, Meyer, Sendacz e Opice (São Paulo)
  • Sergio Michelsen Jaramillo
  • Brigard & Urrutia (Bogotá)
  • Zia Mody
  • AZB & Partners (Mumbai)
  • Christopher Murray
  • Osler (Toronto)
  • Francisco Antunes Maciel Müssnich
  • Barbosa, Müssnich & Aragão (Rio de Janeiro)
  • I. Berl Nadler
  • Davies Ward Phillips & Vineberg LLP (Toronto)
  • Umberto Nicodano
  • BonelliErede (Milan)
  • Brian O'Gorman
  • Arthur Cox (Dublin)
  • Robin Panovka
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Sang-Yeol Park
  • Park & Partners (Seoul)
  • José Antonio Payet Puccio
  • Payet Rey Cauvi (Lima)
  • Kees Peijster
  • COFRA Holding AG (Zug)
  • Juan Martín Perrotto
  • Uría & Menéndez (Madrid/Beijing)
  • Philip Podzebenko
  • Herbert Smith Freehills (Sydney)
  • Geert Potjewijd
  • De Brauw Blackstone Westbroek (Amsterdam/Beijing)
  • Qi Adam Li
  • Jun He Law Offices (Shanghai)
  • Biörn Riese
  • Jurie Advokat AB (Sweden)
  • Mark Rigotti
  • Herbert Smith Freehills (Sydney)
  • Rafael Robles Miaja
  • Robles Miaja (Mexico City)
  • Alberto Saravalle
  • BonelliErede (Milan)
  • Maximilian Schiessl
  • Hengeler Mueller (Düsseldorf)
  • Cyril S. Shroff
  • Cyril Amarchand Mangaldas (Mumbai)
  • Shardul S. Shroff
  • Shardul Amarchand Mangaldas & Co.(New Delhi)
  • Klaus Søgaard
  • Gorrissen Federspiel (Denmark)
  • Ezekiel Solomon
  • Allens (Sydney)
  • Emanuel P. Strehle
  • Hengeler Mueller (Munich)
  • David E. Tadmor
  • Tadmor & Co. (Tel Aviv)
  • Kevin J. Thomson
  • Barrick Gold Corporation (Toronto)
  • Yu Wakae
  • Nagashima Ohno & Tsunematsu (Tokyo)
  • Wang Junfeng
  • King & Wood Mallesons (Beijing)
  • Tomasz Wardynski
  • Wardynski & Partners (Warsaw)
  • Xiao Wei
  • Jun He Law Offices (Beijing)
  • Xu Ping
  • King & Wood Mallesons (Beijing)
  • Shuji Yanase
  • OK Corporation (Tokyo)
  • Alvin Yeo
  • WongPartnership LLP (Singapore)

Founding Directors

  • William T. Allen
  • NYU Stern School of Business
  • Wachtell, Lipton, Rosen & Katz
  • Nigel P.G. Boardman
  • Slaughter and May
  • Cai Hongbin
  • Peking University Guanghua School of Management
  • Adam O. Emmerich
  • Wachtell, Lipton, Rosen & Katz
  • Robin Panovka
  • Wachtell, Lipton, Rosen & Katz
  • Peter Williamson
  • Cambridge Judge Business School
  • Franny Yao
  • Ernst & Young

ITALIAN UPDATE: The Italian M&A Boom – Where Did We Go Right?

Editors’ Note:  Alberto Saravalle is senior partner of the Executive Committee of BonelliErede and a member of XBMA’s Legal Roundtable.  Professor Saravalle is one of Italy’s leading practitioners in corporate law, capital markets, and M&A.

 

Executive Summary

  • Italy is experiencing an M&A boom that is bringing volumes closer to those of the golden years (2005, 2006 and 2007).
  • The acquisitions wave includes deals from both strategic investors and private equity. Infrastructural funds are now investing in Italy, where they find opportunities at prices more attractive than in Northern Europe, in a context that is regarded as politically safe.
  • There has also been considerable growth in the real-estate market.
  • There are many reasons that can explain this major shift: some are common to other European countries such as the quantitative easing, the low oil price, the favourable euro/dollar exchange, the solution of the Greek crisis, etc.
  • The country is finally pulling out of recession, its debt is finally due to begin decreasing next year, treasury bills pay negative real interest rates, and the government has finally begun implementing the privatisation
  • Foreign investors appreciate the relative stability brought by Prime Minister Renzi, after many years of political turmoil. The government has shown determination in addressing various issues that traditionally put foreign investors off.
  • Reforms include the Jobs Act that streamlined the Italian labour market by introducing clearer rules on hiring and firing, and the civil justice system that was traditionally considered one of the main reasons for limited investment, slow growth, and a difficult business environment.
  • Italy counts myriads of profitable small and medium-sized companies, still family-owned which often face the inevitable problem of generational change.
  • The country has always had a favourable attitude towards foreign investors. In particular, Chinese companies considered it one of the preferred entry points to the European market and a gateway to the Mediterranean area.

Main Article

Although we have been hearing much about the latest M&A wave around the world, it may come as a surprise to some that the boom has reached Italy. In the last year and a half, the country, which for a long time was labelled “the sick man in Europe”, has become one of the most attractive M&A markets to invest in. To quote a line from the famous Broadway musical “The Producers”, we are wondering “where did we go right?”. In other words, what are the reasons underlying this unexpected boom that is bringing M&A levels closer to those of the golden years (2005, 2006 and 2007), especially given that only a few years ago Italy seemed on the brink of a forced exit from the euro.

Gaining momentum

But before attempting any analysis, let’s review the data available. According to the 2014 KPMG Corporate Finance Annual M&A Report (the latest available), the Italian market went into a deep decline after its golden years, with M&A levels in 2013 sinking as low as those in 2004. More precisely, 2007’s exceptional EUR 148 billion result drastically decreased to EUR 56 billion in 2008, and continued to decrease in 2009 and 2010 (with a record low of EUR 20 billion) before stabilising at EUR 30 billion in the following three years. Things picked up in 2014, with volumes almost doubling to approximately EUR 50 billion and the number of transactions increasing by 43%.

No official data is yet available for 2015, but all the reports indicate further substantial growth. According to a Reuters’ report, after the first quarter, with deals for EUR 20 billion, Italy became the third most targeted country in Europe, accounting for 11.6% of European M&A. And according to Dealogic, compared to the first nine months of 2014, Italy’s volume for the same period in 2015 almost doubled (EUR 60.5 billion). Even without definitive numbers, deal-making in Italy is clearing gaining momentum.

The investors

Also from a qualitative point of view there has been a step up in pace this year, with major strategic investors clearly targeting the Italian market. To mention but a few deals announced or closed this year, it suffices to cite ChemChina’s acquisition of the tyre company Pirelli, Dufry’s acquisition of World Duty Free, Hitachi’s acquisition of Ansaldo STS and Ansaldo Breda from Finmeccanica, the merger of Yoox and Net-à-Porter, and Mitsubishi’s acquisition of DelClima.

The private equity funds did their part too. For instance, Mercury Italy S.r.l., a consortium owned indirectly by funds advised by Bain Capital, Advent International and Clessidra SGR  signed an agreement to acquire Istituto Centrale delle Banche Popolari (ICBPI), a leading player in the Italian financial services market with strong market positions in payment services, interbank clearing and securities services; Clessidra, an Italian private equity house, acquired a 90% shareholding in the well-known fashion house Roberto Cavalli; and BC Partners, that had previously abandoned the Italian market, came back to acquire a majority stake in Cigierre, a casual dining chain. Last but not least, it is worth noting that infrastructural funds are now investing in Italy, where they find opportunities at prices more attractive than in Northern Europe, in a context that is regarded as politically safe.

Going abroad

With but a few notable exceptions (e.g., Fiat Chrysler, Luxottica, Enel, and Unicredit), Italian entrepreneurs have been less than adventurous in the last few years in terms of investing abroad. This seems to be less the case now, partially because the European market is shrinking, thus making it necessary to have a presence in other promising markets, and partially to diversify risks and opportunities. In 2015, for instance, GTech, controlled by Lottomatica, completed its acquisition of US-based International Game Technology; Exxor (the Agnelli family holding company), following the sale of Cushman & Wakefield, acquired a 43% holding in The Economist and PartnerRe (a large reinsurance company); Ferrero completed its acquisition of Thorntons (a UK chocolate company); and Salini Impregilo announced its acquisition of Lane Industries (a leading US construction company).

The real-estate market

There has also been considerable growth in the real-estate market. The transaction volumes recorded in the first half of the year are double those recorded for the same period in 2014, with 80% involving foreign investors. Among the most notable acquisitions, it is worth noting a sizeable investment by the sovereign fund of Qatar in a large Milan project. And by the levels of investment at year end are expected to return to pre-crisis levels. Moreover, recent reforms of the REITs regulations, rendering them more advantageous also from a tax perspective, will likely lead to more IPOs of such vehicles.

The European context

There are certainly many reasons that can explain this major shift: some are common to other European countries, other are peculiar to Italy. To begin with, an important role has certainly been played by the concurrence of general factors such as the quantitative easing, the low oil price, and the favourable euro/dollar exchange. At European level, the risk of the Euro area breaking up seems, at least for the moment, behind us. Even the third (and most dramatic) Greek crisis has been overcome and the fears of Brexit, although serious, are still distant.

Privatisations are back

Returning specifically to Italy, the country is finally pulling out of recession (we expect GDP to grow by 0.8 or 0.9 % this year), although its debt is still huge, amounting to 132% of GDP (but it is finally due to begin decreasing next year). Treasury bills pay negative real interest rates, and the government has finally begun implementing the privatisation plan that had been requested for so long. The end of 2014 saw the IPO of Ray Way (the Italian public broadcaster’s subsidiary that owns the signal transmission and broadcasting network), followed by the sale earlier this year of around 40% of Poste Italiane (the Italian Post Office). According to the Privatization Barometer of the Mattei Foundation and KPMG, Italy came in at the third place, behind the United Kingdom and Sweden, for the privatisations carried out in the first eight months of this year. Next in line are Grandi Stazioni (which manages 13 of Italy’s largest railway stations), Enav (which provides air traffic control services) and Ferrovie dello Stato (the Italian state railway group). To be sure, it is not these IPOs that will enable Italy to cut its humongous public debt, but it is nevertheless a positive sign of the State’s commitment to reduce its presence in the market economy. And it goes without saying that their going public will contribute to a more dynamic and competitive market.

Political stability and reforms at last

Certainly the relative stability brought by Prime Minister Renzi, after many years of political turmoil, has been appreciated by foreign investors. As the next elections are not due until 2018, the government has more time to make good on its promise to reform the economy. And although only part has been delivered thus far, the Renzi government has shown determination in addressing various issues that traditionally put foreign investors off. For instance, the recent Jobs Act has streamlined the Italian labour market by introducing clearer rules on hiring and firing and a simplified employment system, with protection increasing with length of service. Recent tax reforms should also help streamline the relationship between tax authorities and foreign investors. And after many years of tax increases there have finally been some much welcomed cuts, and although most related to personal income and property taxes, it is expected that they will extend to corporate tax from next year. Liberalisations are also in the government’s agenda, although we are still waiting for parliament’s final approval of the law that should take the first timid steps in this direction.

Another area the government has been focusing on is the reform of the civil justice system, whose inefficiency has often been considered one of the main reasons for limited investment, slow growth, and a difficult business environment. The first data released seem encouraging, indicating a 20% reduction in the backlog of both new and pending cases. The main gist of the reform is the establishment of a separate track for out-of-court settlement, which offers alternative dispute resolution methods for minor cases and certain family law matters (including amicable separations and divorces). In addition, courts can now fast-track simpler proceedings, and new rules have been adopted to accelerate certain enforcement procedures. Last, but not least, as a general rule judges are now required to order the losing party to pay the winner’s attorney’s fees and higher interest rates are payable on the amounts awarded. Although the actual costs of litigation (for the State and the parties) are higher than those awarded by the court, these changes will probably prove the most effective methods to limit frivolous litigation.

Generally speaking, it is fair to say that although the reforms underway will not individually lead to radical change in the market place, they have persuaded foreign investors that the government is tackling the right issues.

Small and medium-sized enterprises for sale

From an industrial point of view, Italy can be considered a land of opportunities. One should remember that it is the second largest industrialised country in Europe. Unlike France and Germany, it has only a few large banks and multinational companies, but it counts myriads of profitable small and medium-sized companies (especially in the rich regions in the north-east) that export all over the world. These are, to a large extent, still family-owned and often face the inevitable problem of generational change. Thus, after the crisis of these years, old patrons facing these choices are more sensitive to the sirens of private equity funds and international strategic investors offering a rich way out and sometimes guaranteeing well-paid jobs to their offspring.

Foreigners are welcome

To complete the picture, it should also be remembered that Italy has always had a favourable attitude towards foreign investors. Unlike other countries, we have never experienced a wave of economic nationalism. The only response to a series of transactions carried out by French companies, which culminated with the acquisition of Parmalat, was the establishment of a sovereign fund. Since then the fund has played an important role but has never been an instrument to block foreign acquisitions. On the contrary, it has often been instrumental in allowing state-owned companies to divest and gradually transfer control of certain assets and companies. More recently, for instance, it acquired a 12.5% interest in Saipem (a global leader with distinctive skills and capabilities in engineering and construction and oil and gas drilling) from ENI, allowing ENI to deconsolidate Saipem. To confirm this internationally-minded strategy of the Italian Strategic Fund, suffice it to say that the Kuwait Investment Authority holds 22.9% of its investment arm.

Chinese investments are here to stay

Of all countries, China has had the lion’s share, with Chinese acquisitions in the last 18 months surpassing those in the United Kingdom and the United States, including acquisitions of significant and strategic assets, such as a 35% stake in CDP Reti, a company that holds 30% of Terna and Snam, which respectively own the electric and natural gas networks. Interestingly, even when Italy was generally considered a less attractive market, Chinese companies considered it one of their preferred entry points to the European market. Italy does in fact offer strategic assets in the traditional and advanced sectors and a gateway to the Mediterranean area. China’s special interest in Italy is also evident from the fact that in the last few years Chinese state-owned banks have acquired small but notable shareholdings in Italy’s largest blue chips.

***

In conclusion, as one would reasonably expect, a number of factors converged to create this momentum for Italy. The credibility of the current government is an important element in this bounce back, but we all know that political credibility is a currency that can be rapidly amassed but just as rapidly depleted. The completion of the reforms underway (including a serious spending review) will be the litmus test. But for now, we have reason to believe that this growth trend will continue.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

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