April 1, 2015 / 3:55 PM / in 4 years

REFILE-After dry spell, Italy hails M&A boom

(corrects calculation in lead)

By Pamela Barbaglia

LONDON, April 1(Reuters) - Mergers and acquisitions in Italy in the first three months of 2015 has nearly matched the value of such transactions for all of the previous year, with hungry investors encouraged by Prime Minister Matteo Renzi’s push for reforms.

Italy was the third most-targeted country in Europe in the first quarter of the year, accounting for 11.6 percent of European M&A activity, ahead of Germany and the Nordics. Britain accounts for 35 percent and France for 12 percent.

It recorded 20.6 billion dollars worth of deals in the first three months of the year, up 260 percent from the same period last year, according to Thomson Reuters data.

That put it close to matching its 12-month performance last year, worth an overall 27.6 billion dollars.

Lawyers and bankers advising European companies on deals attribute the surge in deal-making to investors’ growing confidence in Prime Minister Matteo Renzi’s ability to reform Italy’s economy and make its institutions more efficient.

A recent reform of the labour market and moves to cut business tax are often cited by Italian and international bankers.

However, the resurgence of deals also means that investors have swooped on iconic brands such as Italian tyre maker Pirelli , which last week said it was giving up control to Chinese rival ChemChina in a 7.1 billion-euro deal.

The emergence of international buyers is also seen by deal-makers as a sign of more transparent and open business pratices in the country, where foreign buyers have at times been sidelined regardless of their merits in past auction processes to the benefit of Italian bidders.

Italy, which expects to post growth of around 0.7 percent after a three-year recession, is now seen as a more attractive place for investment at a time when low interest rates, cheap debt and the slump in oil prices have made international investors more determined to make deals.

“There is a momentum for deal-making in Italy as the country is more open to outside investors,” said Luigi de Vecchi, chairman of corporate and investment banking for continental Europe at Citi.

“This is mainly due to political stability and a perception of Italy offering better value than the rest of Europe,” de Vecchi said.

Italy’s M&A fervour follows years of stagnation and the flight of international investors at the start of the financial crisis. The price of Italian assets has dropped and the prolonged recession has made managers desperate to raise fresh capital.

Pirelli’s deal with ChemChina will create a global leader with a market share of 10 percent.

Other significant transactions, notably in the financial services sector, are in the works such as the sale of Istituto Centrale Banche Popolari Italiane (ICBPI), a banking services provider held by several “popolari”, or cooperative, banks.

The ICBPI sale comes amid a landmark reform of the shareholding voting rules in the poplari banks which will pave the way to industry consolidation.

Italy’s third biggest lender, Monte dei Paschi di Siena, is also seen as a possible target after a 3 billion euro share sale takes place in the coming months.

But while banking consolidation will gather pace this year, the action so far has focused on other sectors such as industrials and retail.

Switzerland’s Dufry agreed on Sunday to buy a majority stake in World Duty Free in a deal which valued the Italian firm at 3.6 billion euros and will create the world’s biggest travel retailer.


Last year Renzi set the tone for an M&A pick-up, prompting a series of shake-ups at Italy’s state-controlled companies.

The arrival of new managers sponsored by Renzi at some key state groups such as Finmeccanica, who tackled long-lasting issues and delivered on commitments about asset sales and deleveraging, have rebuilt confidence in Italian corporates and encouraged dealmaking too.

“There has been a change of attitude and a change of pace,” said Massimiliano Ruggieri, head of investment banking at Morgan Stanley in Italy. “Managers have shifted away from a conservative stance to a more active approach when it comes to deal-making.”

Fiat Chrysler Chief Sergio Marchionne, who is no stranger to bold strategic moves, said on the sideline of the Geneva Motor show in March that he was open to a tie-up with industry peers in what would be his last big bang deal before he retires.

The bulk of Italian companies are seen as sellers and have increasingly drawn interest from deep-pocketed Chinese and other Asian investors.

Four of the largest deals announced in Italy since the start of the year have been conducted by Asian companies.

“Chinese investors are looking at a number of dossiers. They’re hungry for deals,” said Unicredit’s Vincenzo Tortorici, global head of M&A.

The Italian banker however cautioned that some of these Chinese buyers may face a “cultural clash” as they tend to believe their money can be enough for a quick fix, undermining broader operational and strategic challenges at ailing Italian companies.

But the bulk of the deals finalized in 2015 have been in the works for several months, if not years.

Italy is still far from being Europe’s favourite spot for quick bargain deals. Negotiations are lengthy and only resilient buyers who are willing to come to terms with complicated company structures and family vendors are rewarded.

“You need to wait, even for years, before the stars are aligned. Perseverance is key,” said Tortorici. (Additional reporting by Sophie Sassard; Editing by Angus MacSwan)

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