The Italian private equity & venture capital market held up well during the pandemic, with the industry positioned to help Italian companies emerge stronger than ever
The Italian private equity & venture capital market held up well during the pandemic, with the industry positioned to help Italian companies emerge stronger than ever
Fundraising by Italy-based funds increased in 2020, despite the fact that this phase remains challenging for Italian operators – the amount of capital raised was lower than in the other big European economies. Notably, there has been an increase in the proportion of capital raised from retail investors, as fund managers have created dedicated funds for this segment.
Transaction activity was characterized by a limited decline in capital invested, but an increase in the number of transactions, thanks to a rise in venture capital rounds and the launch of the National Innovation Fund (Fondo Nazionale Innovazione, FNI), a public venture capital fund focused on early-stage investments. Despite the general economic slowdown, international operators remain interested in Italian companies and have completed a number of substantial acquisitions. In contrast to these positive developments, growth capital is increasingly scarce – this will be essential as companies look to recover and grow as we come out of the pandemic. The turnaround segment also remains underserved, with too few active operators and transactions every year.
Private equity investments in Italy continue to reflect the country’s entrepreneurial structure. Most investments are aimed at small and medium-sized companies (SMEs), with funds active in both innovative sectors, such as IT, and more traditional ones, such as industrial goods and services. Unsurprisingly, divestments were most affected by the crisis, with a significant slowdown in both the number of exits and their value. As has been the case in recent years, sales to industrial corporates remain the preferred divestment route among fund managers.
Private Equity Accelerates Growth
What role does private equity play in the Italian economy? AIFI has carried out numerous research projects into the role of private equity, highlighting the contribution funds make in the creation of value. Our studies show that investee companies grow at higher rates than comparable companies.
Many companies grow through acquisition programs supported by their equity investors, who bring valuable experience and execution support to the acquisition and integration process. Another fundamental element in value creation is internationalization, where portfolio companies again benefit from funds’ extensive experience with previous investments. This leads to an increase in the share of exports and foreign turnover, which in turn improves competitiveness. In addition, companies with private equity shareholders are more innovative than the national average, regardless of whether they are early-stage companies with new technologies or more mature ones operating in traditional sectors. Finally, private equity funds devote a great deal of attention to human capital, particularly when identifying and attracting talent through incentive mechanisms and the alignment of interests and objectives.
Best Practice in ESG
In recent years, increasing attention has been paid to ESG policies, which are increasingly important to institutional investors. AIFI has long been committed to promoting a culture of sustainability within its membership and the wider financial community. We are aware of the transformational role of private equity ownership and believe that ESG allows a new approach to the creation of value that benefits all stakeholders. We have developed the AIFI ESG Guidelines, which were inspired by international best practices. In addition, we have a dedicated working committee, which brings together about 30 domestic and international members to work together on these issues and share best practices that will be developed in full compliance with European regulations. Our commitment to be at the forefront of ESG adoption and implementation will continue to grow in the coming months and years.
Private Equity Improves Companies
The success of private equity is clear to investors. But what of the long-term impact on the companies supported?
To analyze the economic impact of private equity on the real economy and the longer-term impact on portfolios, AIFI has carried out research, in collaboration with the Liuc Cattaneo University of Castellanza, to understand what happens at the time of private equity’s exit from a company. The research analyzed exits completed between 2013 and 2018 to assess the capacity for resilience and see if the period of private equity ownership has structural and long-term characteristics.
Firstly, the data shows that significant growth in employees, turnover, and EBITDA continues in the years following the exit, across all the divestment methods analyzed (sale to industrial subjects, repurchase of the share by the entrepreneur, and IPO). For example, the number of employees in the three years following a private equity exit grows by an average of 8% in the event of a trade sale, 18% in the case of a buy-back, and 22% in the case of IPO. The impact of private equity involvement continues beyond the exit, demonstrating how this sector can play a key role in the restart of the economic system.
About AIFI
AIFI, the Italian Association of Private Equity, Venture Capital, and Private Debt, was established in May 1986 and is internationally recognized for its institutional representation and promotion of private equity, venture capital, and private debt activities in Italy.
AIFI is an association of financial institutions that, on a permanent and professional basis, make investments in unlisted companies, with an active involvement in their development, offering flexible and adaptable finance to meet the needs of individual companies. The Association also brings together an important network of institutions, institutional investors, and professionals interested in the development of the industry.
In addition to representing its members and being a point of reference for analysis and research on alternative investments, AIFI plays an important role in cultural dissemination in the field of financial markets.