Overseas buyers should look again at Italy. It’s hardly surprising that deal-making is slow east of the Alps. But Italian firms excel in fields from fashion to engineering. The country’s parlous state isn’t an insurmountable obstacle to foreign investment. Foreigners just need to find ways to coax Italy’s aging entrepreneur-owners to the table.
No one denies the backdrop is dismal. Italy is enduring its longest recession since World War II. Gross domestic product could shrink 1.8 percent this year, the International Monetary Fund forecast this week. A nasty credit squeeze is under way. Bureaucracy and corruption are perennial headaches. And a fragile coalition government makes policy unpredictable.
The mergers and acquisitions business is correspondingly slow. Italian deals make up just 0.5 percent of cross-border M.&A. in 2013 â€" about half the average of recent years, according to Thomson Reuters data. Some private equity major players, such as Advent and Apax, have gone home.
But foreigners are missing out. The best deals are often contrarian. Italy churns out leaders in consumer and luxury goods, and in high-tech engineering and manufacturing: think of Prada, Ferrero or Ducati. And the country’s distress should help drive prices down.
Even better, from an outsider’s perspective, is that many businesses are family-owned, short of capital, and rather parochial. A crafty foreign acquirer, be it a blue-chip company or a buyout house, could help them expand abroad, far from Italy’s travails and endemically weak growth.
The big hurdle may lie in persuading Italy’s bosses to sell. Many are of pensionable age yet remain keen to maintain control. Some would prefer to raise funds through a listing. If only stock markets were buoyant enough.
One answer is to be patient, and gentle when needed. Witness LVMH’s recent 2 billion euro ($2.6 billion) embrace of Loro Piana, whose cashmere sweaters and cardigans fetch more than 1,000 euros apiece. The selling brothers get a full price, keep a minority stake, and retain their titles at the head of the company.
Structured deals offer another route, particularly for financial investors. So a minority investment now could come with the ability to buy more later, or to cash out through a flotation. It may take creativity, but Italy is worth visiting, not only for the tourists.
Quentin Webb is a columnist for Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.
