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A difficult 2009 for private equity in Italy

, by Tomaso Eridani
According to a report by SDA Bocconi, in 2009 the full effects of the crisis manifested themselves with deals reduced by nearly 2/3. Leveraged buy-outs were vey few (-84%) and non leveraged acquisitions were reduced (-28%)

If in 2008 the Italian private equity market managed to weather the storm in the financial markets, 2009 is the year the negative effects of the financial crisis fully manifested themselves. Illustrating this is a study by the Private Equity and LBO Laboratory of SDA Bocconi which highlights that private equity deals concluded in Italy in 2009 fell by 59% compared to 2008. And according to the researchers the first months of 2010 haven't shown a trend reversal, although there are some signs of recovery.

According to the report, in 2009 leveraged buy-out operations (LBOs) in Italy were drastically reduced (-84% compared to 2008) at a value (enterprise value) of around 3 billion euro. Non leveraged acquisitions were down 28% and returned to the value of levels registered in 2007 (569 million euro in 2009). A reverse trend can be seen instead for early stage deals which in 2009 grew by 88%.

This situation is generalized at European level with notable drops in the number of deals respect to 2008 in France (-28%), Germany (-25%) and the UK (-35%). Only better is Spain which maintained the same number of acquisitions as in 2008.

"The private equity market in Italy is undergoing many changes but maintains a role of primary importance in our economy," comments Valter Conca, head of the Private Equity and LBO Laboratory of SDA Bocconi. "The major deals have disappeared, LBOs have been drastically reduced and the interest in SMEs has grown even in the early stage segment. This period of discontinuity is highlighted by the average duration of the participation in portfolio of over six years, which shows a structural rigidness which is not easy to eliminate."

The report then highlights that, contrary to last year, sales to institutional investors have diminished significantly, sales to entrepreneurs have remained stable (24.3% respect to 26.8% in 2008) and the weight of sales to partners has increased (32.5% respect to 23.9%). IPOs and trade sales appear to be of little importance. Regarding the debt market, 2009 shows volumes in strong fall, levels of leverage still reduced (around 3-3.5 times in the debt/EBITDA ratio) and at not favorable costs.

"Despite all, the market is reacting," comments Conca. "In 2010 some signs of recovery can be seen regarding acquisition financing. From a recent study emerges a certain growth in the inclination of banks to offer debt with increased levels of leverage (around 4-4.5 times EBITDA), even if at conditions still rather unfavorable (375-450 bps above the Euribor)."

"The challenge is open and will be concentrated mainly in the lower end of the market, where many operators are starting fundraising operations focalized on supporting growth of companies operating in the small and mid market," concludes Conca. "Our recent study shows that there are 1,590 SMEs which are ideal targets for private equity. The potential market is there, it just needs to be grasped."

The study was conducted in collaboration with Alvarez&Marsal, Barclays PE, Di Tanno& Associati, Marena Castorino D'Angelo & Fagotto, Iniziativa Advisors and Korn Ferry International.

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