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12 apr 2010

M&A in 2010: the comeback of industrial rationale

immagine M&A in 2010: the comeback of industrial rationale

The global crisis and recession after slowing down the M&A activity in Italy during 2009, are now playing a leading – and somehow positive – role in shaping and defining its comeback. A new way of doing M&A characterized the final months of 2009 and the first quarter of 2010: an industrial rationale is back at the root of transactions, as mergers and acquisitions are now considered by companies as strategic tools to overcome the crisis and revitalize their businesses.

«Nowadays we can identify a vast range of consolidation opportunities in most consumer goods industries» says Attilio Arietti, Chairman of M&A International Inc. «Sectors such as non staple consumer goods have been seriously hit by the crisis: many restructurings and reorganizations have been carried out so far; however, aggregations are still necessary to regain profitability». This is the case in many other industries, such as automotive, entertainment, renewable energy and environmental protection: «Many entrepreneurial activities in green energy sector have been started in Europe in the last few years. Nevertheless, many of those start-ups have been experiencing difficulties because of the credit crunch, at a time when they would need financial resources to foster and develop their activities».

Medium-size companies, which are now in the spotlight of private equity funds and financial investors, still find it difficult to obtain acquisition financing. As Attilio Arietti confirms: «Italian companies operating in niche markets, often as leaders on an international basis, are the most valuable businesses. The strong presence of companies of this kind in Italy, all characterized by strong dynamism and ability to innovate, calls for a deep reflection by financial investors: not surprisingly many private equity funds are now targeting small companies with high success potentials despite their limited size».

Many public companies took advantage of and are now aiming at cross-border acquisitions, especially in US and Asia. However, on the other hand, a vast number of Italian medium-size family-owned companies are still finding it difficult to obtain the financing they need to make acquisitions of high strategic importance.

Private equity funds seem to come back to market after their absence in 2009. They should adopt a new investment philosophy, mainly based on industrial rationale rather than financial leverage: «Funds had to refocus on their own structures and portfolios, trying to deal with many cases they had lost control of because of excessive leverage and downturn in income and cash-flows», underlines Attilio Arietti. «The whole sector should have understood that it is no longer possible to do deals merely based on financial leverage. This situation brings the Italian private equity sector back to its roots: 20 years ago, when banks were not keen to offer high levels of financial leverage, private equity investors had to focus on business strategies rather than finance. This is once again the way forward, and the only approach allowing value creation on a stable basis».