Nomura’s ‘Team Italia’ predicts M&A upturn

As Italy enjoys a post-lockdown economic recovery, it is also going through a phase of atypical political stability. Nomura believes that conditions are ripe for a significant increase in Italian merger and acquisition (M&A) activity this year. It expects financial sponsors, some of its most important clients, to make a meaningful contribution to such growth.

The Japanese bank has more skin in this national game than it once did, as it grows its country presence. Over the past five years, Italy’s percentage contribution to Nomura’s investment banking revenues has risen from “low single-digits” to “mid-teens”, it says. That is partly accounted for by its growing share of the Italian M&A market.

Stefano Giudici, Nomura’s head of investment banking for Italy, notes that local M&A activity has been increasing over the past couple of years and believes this trend will accelerate in 2023. He points to several factors that support this idea, including the state of the Italian economy, which saw a strong recovery in 2021 with a 6.7% expansion in gross domestic product, followed by a 3.7% increase last year.

Then there is the country’s current political stability. Prime minister Giorgia Meloni, the first woman to lead the country, heads a right-wing coalition that won September 2022’s general election with a convincing majority.

Furthermore, the coalition — comprising Ms Meloni’s Brothers of Italy party, Matteo Salvini’s Lega and Silvio Berlusconi’s Forza Italia — enjoyed majorities in important regional elections earlier this year in Lombardy and Lazio. With her party performing best of all, Ms Meloni’s position was strengthened further.

Financial markets are signalling an increasingly positive view of the new government and its implications for the economy. “The spread [of Italian government bonds] over bunds has decreased since the election,” Mr Giudici says, by way of example. Indeed, it tightened from around 250 basis points (bps) last September to some 180bps in March 2023.

Finally, there will be a major boost to capital expenditure (capex) from the €800bn NextGenerationEU post-pandemic recovery fund, of which Italy will be the largest single recipient. “It will fund €190bn of capex for Italy,” says Mr Giudici.

M&A activity

Nomura’s share of the Italian M&A market has grown on the back of two developments in particular, according to Umberto Giacometti, the bank’s head of Europe, the Middle East and Africa financial sponsors. “One is increased activity from financial sponsors,” he says. “The other is increased spending on energy infrastructure.”

Sponsor activity in Italian M&A is now both sizeable and professional, Mr Giacometti reports. “Over the past four years it has grown 12 times in deal value, from around €6bn to €70bn by value,” he says.

As the returns enjoyed here by big blue-chip sponsors like Advent International, CVC Capital Partners and Bain Capital have grown, so they have increased the size of their Italian investments. “Their focus has made a number of smaller, family-owned businesses into large pan-European platforms,” Mr Giacometti says.

Nomura’s Italian investment banking revenues from sponsors have grown 40 times between 2019 and 2022/03, he adds. The bank was lead financial adviser and financing provider to BC Partners on the largest Italian sponsor deal of the past 12 months. Bain Capital, which had been the controlling shareholder of specialty paper maker Fedrigoni, sold an unspecified co-controlling shareholding to BC Partners, valuing the business at around €3bn. The Fedrigoni family and management retained a minority stake.

Nomura was also M&A adviser, alongside Charlwood Ventures, to Bain Capital on its acquisition of Turin-based Deltatre, a leading provider of sports streaming technology, claims that 20% of internet users around the world have engaged with one of its digital products.

The business was acquired by Bruin Capital (then Bruin Sports Capital) in 2016. Bain Capital partnered with Italian asset manager Nextalia to buy Deltatre for an undisclosed sum. Independent press reports put the price at between $700m and $900m, and said Bain was the majority shareholder. Nomura also acted as a capital provider in the uni-tranche financing package.

Overhauling infrastructure

“In infrastructure, it has been a similar story, with success breeding success,” Mr Giudici adds. “Early on, we spotted two megatrends that have been important to present M&A activity.” One, he says, was the restructuring of the value chain in telecoms, as the number of mobile players was reduced from four to three and national leader Telecom Italia ensured it was fit for purpose in the new environment.

Nomura was sole financial adviser to a consortium led by French private equity house Ardian, alongside London-based Canson Capital Partners, which bought a stake in Inwit, Italy’s leading telecoms tower operator. In two separate transactions, the partners invested a total of €2.9bn. This was part of the reduction by TIM (formerly Telecom Italia Mobile) of its Inwit stake, in the wake of the latter’s merger with Vodafone’s Italian towers unit.

That deal made Inwit the largest tower operator in Italy and one of the top five in Europe. “We saw the opportunity before it hit the market and looked for an investor,” Mr Giudici says. “We found Ardian.”

Inwit is still listed on the Borsa Italiana, with a 33.6% free float. Vodafone retains a 33.2% stake while Daphne 3, a vehicle owned 90% by the consortium and 10% by TIM, owns 30.2%. Canson has acquired a direct 3% stake in the business.

This restructuring of the value chain demonstrates how certain businesses inside an integrated operation can have more value if taken outside. “That’s because the integrated operation suffers from low multiples. Attracting outside investors can generate much higher multiples and create value,” Mr Giudici says.

Renewables push

The second big trend fuelling Italian infrastructure M&A is linked to energy transition. The Ukraine war has highlighted the need for energy independence in Italy, as elsewhere. At the same time, there is pressure from regulators and public opinion for decarbonisation of the economy.

“Existing utilities are having to create resources to invest in renewables,” Mr Giudici says. “So, for international players, the scale of opportunity here is massive. They are rethinking their strategy to put more resources into the Italian market, which is acquiring greater centrality for them.” The focus on Italy is helped by the fact that there are now lots of Italians in senior roles at the big private equity houses, he adds.

One example of the new trends combining the themes of infrastructure and sponsors was Italian utility Enel’s sale of a 50% stake in wholly owned Gridspertise to CVC. Nomura Greentech, which specialises in sustainable technology and infrastructure investment banking, was the exclusive financial advisor to Enel.

Gridspertise was formed in 2021 to exploit Enel’s expertise in operating smart grids. It provides grid operators with sustainable solutions for the digital transformation of electricity distribution networks. In a cash deal, Enel sold half the business to CVC for a cash consideration of €300m, equivalent to an enterprise value of €625m. Potential deferred payments could bring the enterprise value up to €1bn.

Planes, trains and automobiles

Transport is another sector where the bankers expect to see more activity. “Tourism is an important business in Italy, but Covid-19 seriously disrupted traffic in airports, on motorways and rail,” Mr Giudici says.

Today, the escape velocity from Covid is remarkable, he says, with airport passenger numbers higher than they were in 2019. “Significant NextGenerationEU funds will be going into rail,” he adds.

Meanwhile, Mr Giacometti expects market conditions for deals to normalise in the third quarter this year, and says that the amount of dry powder held by Nomura’s core clients will support a rise in M&A activity.

As investments by the larger sponsors mature, they will be looking towards an exit, which should further fuel M&A. “Potential exits in Italy over the next 12 to 18 months are significant in both numbers and size,” he says. “We have identified a large number of opportunities with enterprise values ranging from €500m to €6bn or €7bn.”

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