By Rares Ionescu, Argyro Charizona, and Elena Cavallaro
Overview: The Private Equity Market in Italy over the last 20 years
The private equity (PE) sector in Italy has matured considerably over the past two decades. Once characterized by a smaller volume of transactions, the Italian PE market has grown to become a significant part of the Italian economy and financial landscape, linking traditional Italian family-owned businesses with international financial markets. At the end of 2022, the Italian Private Capital Association reported that PE players owned portfolios of about 2,000 Italian companies, valued at roughly EUR 70 billion. In 2022, the private equity market in Italy reached unprecedented levels, with 848 transactions involving 624 companies and a total deal value of approximately EUR 23.66 billion.
The sector’s evolution reflects a broader trend of increasing sophistication and diversification in investment strategies. The venture capital/early-stage sector saw 547 transactions in 2022, indicative of a growing interest in supporting nascent industries. The buyout and infrastructure sectors were the most significant in terms of deal value, reflecting the strategic importance of established industries in the Italian economy.
In the first five months of 2023, the Italian PE market showed resilience, executing 164 transactions, including several add-on investments, predominantly in the mid-market sector. This activity level was in line with the previous year, despite global economic and geopolitical concerns.
As the market matured, structural trends such as increased sale auction processes, co-investments, and consortium deals between PE firms and strategic investors became more common. These collaborations, especially in the infrastructure sector, allowed for a combination of technical skills and financial capability to tackle the challenging economic environment.
The Italian PE market is considered attractive for its large number of potential transactions and appealing valuations compared to other mature markets. The “Made in Italy” brand, renowned for its quality, plays a pivotal role in attracting investments. Notably, the Lombardy region and Milan have become hubs for cross-border inbound investments. The National Recovery and Resilience Plan, financed by the European recovery plan, is expected to inject more than EUR 220 billion into the Italian economy over five years, positively impacting the business environment and PE activity.
Market instability, the cost of debt, and evolving business conditions in 2023 have influenced PE transactions, with investors becoming more selective and alternative payment structures, like earn-out schemes, becoming typical in contracts. Regulatory changes aimed at enhancing transparency and new compliance requirements, particularly related to ESG, data protection, and cybersecurity, have added complexity to investment decisions.
The broadening of Italy’s foreign investment screening mechanism (“golden power”) following the COVID-19 outbreak reflects an increasingly cautious approach to foreign investments, especially concerning strategic assets.
The Impact of Private Equity on Italy’s Fashion and Luxury Industries
Italy’s fashion and luxury industries are not only integral to its economy but are also symbolic of its cultural heritage. Italian fashion has been renowned since the 11th century, particularly celebrated for its high-quality craftsmanship, sharp tailoring, and luxury designs. The sector as a whole is one of the most important globally in terms of revenue, employment and volume. The fashion and luxury industries hold the same significance for Italy as the automobile sector does for Germany.
Private Equity has played a transformative role in this sector. The Italian market as a whole, attractive due to its renowned sectors like high-tech, fashion, and design, has seen an abundance of private equity activity. Especially the Italian mid-market segment, where most of the fashion and luxury businesses reside, boasts a high degree of specialization and competitive advantage, thereby offering significant private equity opportunities.
The Italian luxury sector has historically been characterized by a ‘small is beautiful’ philosophy. However, the global competition has necessitated a shift towards unity and scale. This need for expansion and collaboration has been heavily felt in the luxury goods industry, where Italy is a global supplier and producer of luxury and leather goods. These typically family-owned and small-sized businesses often struggle to meet the evolving needs of the big brands they supply. Here, private equity has stepped in, adopting a “buy and build” strategy to facilitate growth and cohesion among these suppliers.
The significant supply chain disruptions brought on during the COVID-19 pandemic further accelerated this trend, convincing many business owners to embrace external investment. Private Equity has therefore begun to account for a substantial portion of transactions in this sector, including significant buyouts of well-known brands. This influx of private equity has led to the creation of business hubs that consolidate various companies to create entities capable of meeting the demands of the global market more effectively. An example of this is Gruppo Florence who was acquired earlier this year by Permira with the aim to further consolidate the luxury fashion production chain by vertically integrating other major Italian fashion companies.
Another notable example of this strategy is the Italian private equity firm XENON International, which has focused on producers of materials and finishes for luxury items, grouping them together in MinervaHub. This approach not only helps streamline operations but also provides critical support in legal, financial, and environmental, social, and governance (ESG) matters. This consolidation helps in achieving economies of scale, making it easier to manage production waste and reduce the carbon footprint, a critical factor in today’s environmentally conscious market.
In summary, the Italian fashion and luxury sector, a bedrock of national identity and economic strength, is undergoing a significant transformation under the influence of private equity. This shift is characterized by a move from small, family-owned operations to larger, more unified entities better equipped to compete on the global stage. The involvement of private equity is not just reshaping business structures but also ensuring that these companies remain at the forefront of innovation and sustainability, vital for their continued success in a highly competitive international market.
Case Study: Private Equity Giants Permira and Carlyle Value the Italian Luxury Footwear Market
In a strategic move to expand its portfolio in the high-end fashion sector, The Carlyle Group acquired Golden Goose Srl in December 2016. The Italian luxury brand, known for its sneakers, was purchased for USD 431.62 million, a transaction that was 100% cash-paid. Carlyle’s investment was driven by a strategy to amplify Golden Goose’s retail and online presence internationally, leveraging the brand’s unique market position in luxury sneakers.
During Carlyle’s ownership, Golden Goose experienced significant financial growth, with revenues increasing from €100 million to over €260 million, showcasing a successful execution of the growth strategy and a robust increase in brand value. The revenue multiple at acquisition was 4.00x, indicating a strong expectation of future earnings and cash flows.
After four years of growth under Carlyle, Permira, another private equity giant, took over Golden Goose in a deal completed on June 16, 2020, valued at USD 1.4 billion. This secondary buyout, also paid entirely in cash, represented not just a change in ownership but also a validation of Golden Goose’s elevated market valuation and potential for future expansion. Permira’s acquisition marked a pivotal moment, setting the stage for the next phase of growth, focusing on further international market penetration and product diversification.
As of 2023, Golden Goose has not only sustained growth but accelerated it. The brand achieved net revenues of €276.4 million in the first half of the year, marking a substantial 21% year-over-year increase. This surge in revenues was complemented by a 34.6% rise in EBITDA, reinforcing the company’s profitability and operational efficiency. The first quarter alone saw a 20% rise in sales, underscoring a continuous upward trajectory.
The financial performance has been well recognized in the investor community, with Fitch Ratings upgrading Golden Goose’s Long-Term Issuer Default Rating to ‘B+’ from ‘B’, citing a stable outlook. This rating reflects the successful execution of the business plan and a robust performance trajectory.
Looking forward, Golden Goose is preparing for a public offering, with plans to list on the Milan stock market in the first half of 2024. The IPO is seen as a strategic move to capitalize on the brand’s strong financials and market position, potentially offering a lucrative exit for Permira while providing Golden Goose with access to broader capital markets to fuel its next growth phase.
Golden Goose’s journey through private equity hands—from Carlyle to Permira—exemplifies a classic private equity play: acquire, improve, and exit. The brand’s consistent performance, strategic expansion, and the strengthening of its supply chain have made it a textbook case of value creation in the luxury fashion industry. With the upcoming IPO, Golden Goose is poised to enter a new era, leveraging public investment to further its global expansion and solidify its status in the luxury market.
Sources
The Private Equity Market in Italy: Past, Present and Future – McDermott Will & Emery
Private Equity 2023 – Italy | Global Practice Guides | Chambers and Partners
Private Equity Laws and Regulations Report 2023 Italy – iclg.com
FactSet and Mergermarket for deal numbers and total value
The impact of private equity on Italy’s Fashion and Luxury Industries
“How Italy Is Built On Fashion” – Google Arts & Culture (artsandculture.google.com)
“Private Equity in Italy: An Undervalued Market” – Deutsche Beteiligungs AG (www.dbag.com)
“Private Equity Persuades Italian Luxury Suppliers That Bigger is Better” – Reuters (www.reuters.com)
“The Economic Impact of Private Equity and Venture Capital in Italy” – PwC Italy (www.pwc.com/it)
“Longer Hold: Putting Private Equity Strategies to the Test” – PE Insights (pe-insights.com)
“Italy: Private Equity Deals Down but Not Out” – Fashion Network (ww.fashionnetwork.com)
“Gruppo Florence: Bridging Italian Luxury Fashion” – Gruppo Florence (www.gruppoflorence.it/en/)
The Carlyle Group to Acquire 100% of Golden Goose Deluxe Brand – Carlyle (www.carlyle.com)
Italy’s Golden Goose valued at 1.28 bln euros in Carlyle-Permira deal – sources – Reuters (www.reuters.com)
Moncler can inspire Golden Goose’s next step – Reuters (www.reuters.com)
Impressive 21 per cent H1 growth for Golden Goose – Apparel Resources (www.apparelresources.com)
‘Culture Is the New Luxury’: Golden Goose CEO Unveils Strategy for Next – Business of Fashion (www.businessoffashion.com)
Fitch Upgrades Golden Goose to ‘B+’; Outlook Stable – Fitch Ratings (www.fitchratings.com)
Golden Goose takes step towards listing in Milan next year – sources – Reuters (www.reuters.com)
Mergermarket Golden Goose company profile and deal analysis
Comments are closed.