If 2018 was a remarkable year for the Italian M&A sector, both in terms of number of transactions and value, 2019 started with a net drop continuing the outlined trend of last year´s fourth trimester. This, reflecting a complicated Italian and European scenario.
According to KPMG´s report on Italian M&A activity, volumes remained almost unchanged at 165 transactions against the 167 closed the previous year. However, a significant drop in the market is observed in the value of transactions: The first trimester of 2019 recorded closed operations for 4.3 billion euros; less than half the 10 billion in the first quarter of 2018 (see chart below for more data)
According to experts, the main reasons for the contraction are to be found in (i) the uncertain political framework (Internal political instability as well as external: Brexit, the European elections, the change at the top of the ECB), (ii) the slowdown in expected GDP growth, but, above all, the average expected multiples on the Ebitda of companies on the market, which 2018´s very high values the market does not regard as sustainable expectations (10x vs 8.3 in 2015, 7x in 2010 and 7.6 in 2005 for Private Equity and strategic acquisitions- KPMG). In addition, due to the mentioned political and economic framework debt for acquisitions is less readily available.
In this context, however, there are sectors of the market that continue to progress. Cosmetics, design and furnishings, the software world and food are sectors that will continue to prosper in the coming months of 2019. The sectors with low technological and innovative content (manufacturing sectors and producers of intermediate goods), are instead those that risk suffering the most.
According to some observers, the remainder of 2019 will be a “not very lively year” and characterized by strong caution with more contained multiples; always keeping in mind that in a country with a strong manufacturing vocation like Italy the “industrial logic” tends to prevail over financial trends.
Post by Studio Alberti.