Italian Private Equity conference – 22nd September 2016

The second edition of the Italian Private Equity Conference took place in Milan on 22nd September and it became one of the most important events of the year for the industry, attracting more than 70 LPs, 70 GPs, and 50 CxOs. The ITPEC gathered all the titans of the private equity sector and provided a very fruitful environment for discussions, networking opportunities and the exchange of ideas.

More importantly, the value of the event was determined not only by its important guest list, but also by the 10 panels, which provided an insight into a number of interesting topics, ranging from Italian PE performance to CEOs’ perspectives.

The Big picture

The general sentiment was very positive due to the fact that the Italian market has performed quite well over the past year and is still growing. There has been a significant increase in the number of deals (+€1bn YoY) and Italy ranks first in the EU in terms of the PE industry’s growth rate. Funds have a lot of dry powder and the level of investor confidence is picking up. At the same time, firm owners are more willing to sell their companies and investors more willing to invest in them. However, there are several factors which make the picture less rosy – the average deal size is declining, the EV/EBITDA multiple is increasing and the discount compared to other countries in the region has almost disappeared.

The Italian market is getting crowded with more international funds participating in auctions. In this environment, local presence is no longer an advantage and funds need to focus more on differentiation and value creation.

Exit strategies

Usually PE investors start thinking about the exit strategy prior to making an investment, but for those who have not developed a precocious strategy, the current period appears to be a good period for exit, taking into account the high valuations.

IPOs remain the least popular exit strategy due to the smaller size of companies and the regulatory environment. It is becoming more common for companies to go through a number of secondaries where every new sponsor adds an additional layer of growth.

Brexit

Brexit was another hot topic that was discussed and the overall view was that markets are starting to get back to their pre-referendum state. Its impact on the EU will be very limited and it has actually created good opportunities for PE funds, which traditionally take advantage of special situations with higher levels of uncertainty.

Italy – A bridge for investments in Africa

The strategic position of Italy and its potential for becoming a bridge for investments in Africa was also mentioned but the lack of local talent, political and economic instability still remain big challenges.

Chinese investments in Italy

Many Italian private equity funds have started to realize that establishing partnerships with Chinese investors can be very useful for raising funds and growing their portfolio companies. They are starting to deal directly with Chinese companies rather than using advisors who do not guarantee deal success and are often very slow.

In addition to that, Chinese companies are evolving and getting used to the European way of doing business and European funds are becoming more interested in working with smaller investment funds rather than large investment holdings like Fosun.

Future prospects

Pension funds and sovereign wealth funds around the world have started to invest directly into private equity in many countries, including Italy, but most of the Italian institutional investors refrain from investing domestically and do not only miss good investment opportunities but also hinder the development of the industry. A potential reassessment of their investment strategies and some regulatory changes could become a catalysing event for PE activity in Italy.

Other key factors that will determine the direction of the market over the next few years will be the political stability, GDP growth and the state of the Italian financial sector.