Fourth episode of EY M&A Compass, the in-depth look at the Italian M&A market developed by EY together with BeBeez
Article published in BeBeez Magazine no. 19 of 23 March 2023
by Stefania Peveraro
“Strengthening governance and opening up to external capital acts as a strategic lever to strengthen acquisitions, optimises the risk/return of transformative transactions such as m&a, and instils greater confidence in moving on acquisitions. If we look at the type of Italian buyers abroad, in fact, companies with external capital graft (IPOs, private equity investors, etc.) account for the vast majority of acquisitions abroad, e.g. around 60 per cent of foreign deals in 2023‘. This is the overall result of an analysis conducted by Andrea Cacciapaglia, partner, Strategy & Transactions, EY Italia, on Mergermarket data and presented on the occasion of the fourth episode of EY M&A Compass, the in-depth analysis on the Italian M&A market developed by EY together with BeBeez.
Basically, underlines Mr. Cacciapaglia, “the Italian companies most active on the international m&a front are those that have structured themselves to do so in terms of internal organisation, suitable management and focused strategy, which happens more often in the case of companies whose capital includes private equity investors or institutional investors, in the case of listed companies. Having said that, there is nothing to prevent family-owned companies from also working to be able to take full advantage of international development opportunities through acquisitions, but an adequate strategic plan is needed”‘.
Click above to see the fourth episod of EY M&A Compass
with Andrea Cacciapaglia, partner, Strategy & Transactions, EY Italy
Question. On the subject of cross-border M&A transactions involving Italian companies, what do the most recent figures say?
Answer. They confirm that Italian companies, due to their size and governance structure, are typically seen as acquisition targets rather than as active players in cross-border M&A transactions. In fact, if we look at the international m&a flows involving Italian companies in the last 10 years (EY processing on Mergermarket data), thus excluding Italy-on-Italy transactions, we see a strong prevalence of transactions both in number and in value of acquisitions of Italian targets promoted by foreign buyers rather than of foreign targets promoted by Italian companies. In particular, of the total number of cross-border transactions, on average over 60% were acquisitions of Italian targets by foreign parties and only the remaining 40% were acquisitions of foreign targets by Italians. It is true, however, that in recent years, foreign M&A activity for Italian companies has been decidedly more dynamic to the extent that, in 2023, an all-time peak of investments was reached with almost 300 completed transactions and approximately EUR 18 billion in value.
Q. Where do Italian companies invest abroad when they do so?
A. The most relevant sectors today from the point of view of international M&A activity for our companies are those where the strength of the Italian entrepreneurial fabric is most developed, and therefore in the industrial world, which in 2023 accounted for almost 25% of deals abroad, together with technology, followed by pharmaceuticals and consumer goods. As for the target countries, they were mainly the major European countries with which there are greater industrial and commercial exchanges, with a significant share of Spain, followed by Germany, France and the United Kingdom. There was an interesting focus on the United States, which is a major market for many Italian companies and ranks second as a target country with 43 transactions.
Q. Perhaps this change of pace in 2023, with the increase in foreign investments, is due to private equity operators pushing their investees down this road?
A. It is possible. Certainly the weight of M&A transactions made by funds on the total Italian market is growing. Today they account for about 35% of the total number of deals and a much higher weight in terms of value, because many of the largest private equity transactions are conducted by foreign operators, mainly of Anglo-Saxon origin.
Q. Coming back to averages and therefore to the difficulty of Italian companies in venturing into acquisitions abroad, which are the main reasons, in your opinion?
A. This historical trend is explained, in my opinion, by two fundamental reasons. On the one hand, by the small average company size, which therefore makes it more complex to embark on M&A transactions abroad due to capital and management limitations. And on the other hand, by cultural aspects linked to the lower confidence of family-owned companies with respect to M&A deals especially in countries other than the domestic market.
Q. And so, given that development on international markets is increasingly relevant to support companies’ growth objectives, how can we get out of the impasse?
A. It is essential to structure a clear strategy of objectives by geographic areas and specific business areas to direct the target identification activity and to define a strong coherence between strategy and execution of M&A activities. In fact, M&A activity is one of the strategic routes to growth and not a target per se. In this sense, a strengthening of the m&a strategy areas within companies and the composition of an internal and external team focused on this strand of activity is important to have dedicated focus and resources. The approach to foreign M&A is more effective when it is proactive, i.e. studying the targets and trying to structure the operation in advance of when it will go to market, as opposed to a reactive approach where it can happen that when the company of interest goes to market it is too late.
Q. In your opinion, are Italian entrepreneurs ready to be guided along this path?
A. I answer you with the results of a survey that EY commissioned last January among entrepreneurs and managers of several Italian companies as a contribution to our EY CEO Outlook Pulse. We recorded a strong priority for development and transformation on the part of those who lead our companies with 76% of CEOs seeing transformation of their business in the next 12 months (compared to 58% globally) and as many as 98% intending to pursue extraordinary transactions in the same timeframe (compared to 84% globally). Specifically, in the daily dialogues we have with clients on growth strategies, that related to inorganic development (hence m&a) abroad is a topic of increasing interest.
Click here to read the first episode of EY M&A Compass
