M&A in Italy (2012)

Italy is the 10th largest economy in the world based on purchasing power parity. The fiscal situation is fragile and political circumstances could damage reforms and could lead to further instability. An €40bn ($56.2bn) austerity program should tackle the weak financial position. According to Transparency International’s Corruption Perception Index 2010, Italy is ranked 67th among 178 countries. The foreign investment laws of Italy are similar to those of other EU countries, structural rigidities and the dominant public sector have an adverse impact. Tax rates in Italy remain relatively high. The effective tax rate is 31.4%, basic rate of corporate tax in Italy is 27.5% and local tax is imposed at a rate of 3.9%. The EU average in 2010 was 23.2%.

Investing in Italy can be attractive but also includes some hurdles. For some sectors there are M&A restrictions (see details last paragraph). Further, legal difficulties and relative high taxes can be less attractive. The market size, strong industries like ICT (especially communication equipment), Biotech, Manufacturing, Automotive and Renewable Energy can be interesting areas for M&A investments. The Italian government has started several initiatives to improve the situation.

Business in Italy

The business confidence index reached pre-crisis levels in November 2010. Italy’s budget deficit rose to 4.8% of GDP in 2009, with a 5.5% decline in revenues and a 1.2% increase in current expenditure. In 2010 Italy registered a budget deficit of just under 5%. Although Italy is the third largest economy in the Eurozone, it has difficulties in tackling its high debt of approximately 119% of GDP. Slow economic growth (averaged around 0.3% between 2001 and 2010), weak public finances and the budget deficit are challenges for Italy´s competitiveness and strength in the markets. The low R&D expenditure and limited innovation can be causes for concern. In 2002 Europe set a target of 3% of the GPD. Since then Italy is hovering around 1,1% expenditure as a percentage of the GPD with 1,2% in 2010. Result is a small number of patents registered.

Italy’s unemployment rate is at around 8.4% in 2010. According to EU Labour Force Survey 2010 the employment rate in Italy was 56.9%, the EU average is 64.2%.

The Innovation Union Scoreboard 2010 placed Italy in the group of “moderate innovators,” with a performance below the EU average. The Italian government offers opportunities in the ICT industry, with planned technology expenditure of around €5bn including information technology and network connections.

Key industries of Italy

Italy´s processing and manufacturing sector are well developed, with precision machinery, motor vehicles, chemicals, pharmaceuticals, electrical goods, and fashion and clothing being major industries. Main exports of Italy are textiles and clothing , motor vehicles, chemicals, engineering products, production machinery, transport equipment, food, minerals and nonferrous metals. Italy’s exports and imports to non-EU countries increased by 17.7% and 30.0% respectively in April 2011.

A strong services sector is contributing around 74% of GDP. Tourism, retail, and financial services are a significant part of the services sector. The sector is considerably more regulated than in other European countries. Liberalization by the government has taken place in several sectors such as retail trade, pharmaceuticals, professional services, local public services, and retail banking. In the professional services sector some of the protectionist regulations were removed. The financial services sector of Italy is better placed than other European nations, with a smaller share of riskier products in their portfolio.

M&A opportunities in Italy

The market for telecommunications equipment and services in Italy is estimated to be the third largest in the EU with a total revenue of $447.3m in 2009. Italy has earmarked around €4bn for the development of renewable energy and energy efficiency. The biotechnology market has posted healthy growth rates over the past three years.

A National Reform Programme should eliminate macroeconomic imbalances, improve public finances and reduce public debt. Large amounts are earmarked for structural initiatives in the logistics sector, for supporting industrial policies, on education to strengthen skills development and improve the quality of education and training systems to increase labour-market participation, for technological R&D and the development of renewable energy and energy efficiency. This should improve the country’s competitiveness by strengthening the markets. Weak implementation of intellectual property laws is a challenge for Italy.

M&A restrictions

M&A can be reviewed as provided for in the country’s Antitrust Law. Foreign participation is not encouraged in sectors like defence and aircraft manufacturing. Additional requirements have been imposed on the film and shipping industry.

Italy is due to its market size an interesting country for M&A. We tried to give an impression about M&A in Italy. If you have a question, suggestion or opinion leave a reaction on this article.