Cleared for take-off in Italy(2)

Cinven’s €3.3bn sale of Avio to GE wasn’t straightforward – but it shows that international trade buyers are still willing to do deals in troubled Italy.

Italy may not seem the obvious place for a mega-deal at the moment. As economic and political clouds continue to loom, buyers would be forgiven for shying away from big-ticket acquisitions in the country. 

Yet Cinven’s latest exit shows that large-cap sellers can overcome the turbulence successfully. In December, the UK-based group sold the entire aviation business of Italian aerospace group Avio to General Electric for €3.3 billion – the country’s largest buyout of the year, according to Dealogic.

It clearly helped that Avio’s exposure to its domestic market was fairly limited: the group generates less than 6 percent of its revenues in Italy, according to Roberto Italia, a partner at Cinven.

But the deal still faced significant obstacles. “It was not an easy interaction between buyer and seller, due to the nature of a long-standing relationship [where Avio was a key supplier and GE was a key customer]. We needed to make sure that those who counted and expressed an opinion about the transaction were behind the deal,” Italia says.

That included getting the country’s political and military powers on board. Avio is a key supplier to the Italian ministry of defence, and as such is heavily involved in a sector of high strategic importance.

The unions also needed convincing. “Avio has more than 5000 employees. Therefore we needed to interact constructively with the unions so that they would not regard the deal as an aggressive transaction.”

Some of these obstacles were clearly particular to Avio. Nonetheless, the fact that the deal went ahead in the current climate does suggest that international trade buyers are not shying away from Italy.

In fact, says Italia, the reverse may be true. “I expect specifically that Italy will be an area where international trade buyers will spend a lot of time. There are a lot of quality companies and market circumstances are weak, therefore I suspect those who have cash resources will begin a proactive exercise to scout for opportunities in the Italian market,” says Italia. For GPs looking to realise their investments in the country, that would certainly be good news.

There is a caveat: Italia admits that buyers will mostly be interested in mid-sized targets – and will focus on companies with limited exposure to the domestic market. So big ticket sales are likely to remain few and far between (and smaller companies may be hard to sell, too).

However, that still leaves a substantial number of opportunities, he says. “You have a lot of Italian mid-market companies that are export-led, with more than 50 percent of their revenues generated outside Italy. And those companies have the assets, talents and technology that could make them of interest to trade buyers.”

The numbers certainly suggest as much. According to Mergermarket, the total value of trade exits rocketed to €6.8 billion in 2012, up from €1.8 billion in 2011. And mid-market companies accounted for most of those deals: leaving the Avio deal out of the picture, the average size of trade exits was €175 million.   

Indeed, perhaps Italy’s best hope of another Avio lies in Avio itself. Cinven still owns the group’s space division – and, according to Italia, there are already a few potential buyers circling.