Surprising international intentions

Stefano Salvadeo discusses the latest trends in Italian M&A

I was interviewed on Focus Economia di Radio 24 recently to discuss some positive indicators regarding M&A activity in Italy. Italian speakers amongst you can listen to the full interview here, but for everyone else let me just explain what I talked about.

Grim economic news continues thick and fast in Italy at the moment so the interviewer was interested in what was driving the strong M&A numbers derived from our International Business Report (IBR). The survey of 200 business leaders in Italy found 25% expecting some sort of M&A activity within three years. Of these businesses, 84% were looking at domestic deals and 34% at international deals.

This level of expected cross-border activity was higher than I expected. With the economic and political situation here still delicate, it makes sense that Italian businesses are looking for opportunities overseas. It also reverses the trend of recent years whereby Italian companies have been swallowed up by foreign groups.

In terms of where businesses are looking for deals, there are some distressed assets in Europe which offer good value but the real drive is towards the Americas, China and India where growth projections are healthier, labour is cheaper and the tax burden in less onerous. World-renowned Italian excellence in sectors such as engineering and fashion mean there will always be local assets in these markets willing to accept investment.

How firms get hold of the means to finance these acquisitions is another matter entirely. Banks are more demanding now and receiving funds has become more difficult than in the past. Having a strong, well-grounded industrial plan is therefore key. A mere cost-cutting strategy is not enough to ensure  a successful internationalisation – unless backed by an industrial plan, an M&A deal will not succeed over the medium to long term.

Alternative sources of financing projects are also worth considering. Enlisting Private Equity (PE) funds and financial players among corporate stakeholders may ease the lending process. It is also an invitation for PE funds to help corporates in their internationalisation process and a stimulus for entrepreneurs perhaps to accept PE funds as shareholders.

It is good to hear that demand for Italian expertise is still alive and well.

Stefano Salvadeo is a partner and head of advisory at Bernoni Grant Thornton.