World View: The International M&A Podcast

Marco is the London resident partner and corporate finance partner at Legance Avvocati, one of Italy's leading law firms with offices in Milan, Rome, and London. Marco has been involved in several major M&A and private equity transactions carried out in the Italian and international markets and regularly advises private equity funds, banks, financial institutions, and strategic investors on a wide range of transactions. Thank you, Marco, for joining us today.

 Thank you, Antonia, for having me here. 

Over the past few years, as you will know, Marco, the UK M&A market has been volatile due to many factors that we are all now familiar with: interest rates, inflation, the war in Ukraine, the COVID pandemic, supply chain issues, and of course, Brexit. The future landscape looks fragmented, with changes in the UK government driving some structural changes to the M&A landscape. Some of these changes could be beneficial, such as increased focus on clean energy and investment in infrastructure, while others introduce uncertainty, such as changes to carried interest taxation on private equity. Some are still too early to fully assess.

Can you talk us through, Marco, the key factors that are affecting the Italian M&A market recently and how they have changed the shape of your deals?

Indeed, Antonia. In recent years, with so many unprecedented black swan events and growing regulatory scrutiny, M&A transactions have shaped the Italian market, which has remained resilient and dynamic. Although deal volume dropped slightly in 2023, it rebounded in the first quarter of 2024 with one of the most remarkable increases in deal value registered in the last decade. The second half of 2024 seems promising, with an interesting pipeline of M&A and private equity buyout deals. Overall, the actual levels of executed M&A transactions, both currently and in the past years, demonstrate a steady confidence of international deal-makers and the global M&A community in the Italian market.

In particular, we are seeing an increasing use by traditional Italian family-owned businesses of M&A strategies for consolidating their core businesses. This phenomenon, which we refer to as M&A democratization, is boosting the mid-market M&A sector and is reflected in the "Made in Italy" focus by SMEs, which are the backbone of the Italian economy. These SMEs are increasingly familiar with financial sponsors and strategic buyers, aiming to grow through new forms of equity and debt while also adopting new governance structures aligned with environmental, social, and governance (ESG) factors.

Key factors contributing to the positive evolution of the Italian M&A activity include a combination of macro, micro, global, and domestic factors. Notably, the moderate recovery of the global economy, with inflation declining and financial and macroeconomic indicators improving, has contributed to better access to financing, despite continued supply chain disruptions and global trade issues. Additionally, the performance of the Italian economy, relative to historical data, and the globalized post-COVID world order with a rising clash between democracies and autocracies, have also influenced the market.

International investors perceive a new political stability in Italy, partly due to the recent outcome of the European elections, which has fostered the current government and strengthened the Italian institutional and economic framework. This stability is further compounded by an expanding array of investor clusters, including global investors, alternative capital providers, private equity funds, large family offices, corporate venture capital, and institutional investors. This variety has led to a persistent spill over of outbound and inbound cross-border M&A transactions.

Shaping the Italian business environment are also the environmental, social, and governance (ESG) developments and innovative regulatory reforms. The new Italian Capital Market Law, for example, is expected to facilitate access to capital markets and improve protection for investors. Additionally, structural reforms aimed at renewing the Italian judicial system and digital innovation of public administration are expected to enhance efficiency and reduce bureaucratic red tape.

As for the timeline of M&A deals in Italy, it has recently increased due to a number of factors, with an average duration of five to seven months. Depending on deal complexity and party behaviors, it can take as little as two to three months or more than one to two years. Factors affecting this timeline include regulatory requirements, industry-specific conditions, and contractual provisions such as material adverse change clauses. Additionally, regulatory clearances related to foreign direct investment and national security concerns are critical, with the Italian government generally providing responses within 45 days of notification.

Looking forward to the rest of 2024, energy, utilities, and resources are predicted to be fundamental sectors for M&A activity. ESG considerations will drive a focus on assets compatible with net-zero goals, while sectors not aligned with these goals may face challenges. ESG is increasingly reshaping corporate strategies and M&A transactions in Italy, with growing demand for ESG-aligned investments expected to influence the market.

For Italian clients expanding into the UK market, the approach involves navigating various hurdles, including foreign direct investment regulations. The UK’s regulatory framework grants significant scrutiny to transactions, which can impact timelines. Despite these challenges, Italian investors remain active in sectors such as infrastructure, energy, fintech, and technology.

With the new UK government, future M&A activity between Italian and British companies may benefit from potential regulatory reforms aimed at reconciliation with the EU. This could enhance Italian foreign direct investments into the UK, especially in green energy, infrastructure, and tech sectors. However, significant changes in M&A flows may not be immediate and will depend on the progress of reforms and absence of additional disruptions.

In summary, the Italian market is expected to remain attractive for private equity and M&A, with regulatory clearances manageable with the right advisors. Activity between the UK and Italy will continue, with a focus on energy, infrastructure, and technology.

Thank you, Marco, for your time. Thank you, Antonia. And thank you to our listeners for tuning into this TLT podcast. Please visit tlt.com to listen to our other podcasts in this series. If you found this interesting, please like and subscribe on your usual podcast provider.