Corporate M&A 2023

Last Updated April 20, 2023

Italy

Law and Practice

Authors



Nunziante Magrone is an independent multidisciplinary Italian law firm. Thanks to the specific expertise of its professionals, the firm is able to assist its clients in all major areas of business law through its departments. Nunziante Magrone has more than 80 lawyers, with offices in Milan, Rome and Bologna. Nunziante Magrone has a strong international practice and is consistently acknowledged for its members’ expertise.

In contrast with the worldwide trend, the Italian M&A market experienced a very positive end to 2022, both in terms of the number of reported operations carried out (971 in 2022, ie, an increase of 32% compared to 705 in 2021) and in terms of reported total value (EUR89.4 billion in 2022, ie, an increase of 11% compared to 2021).

The M&A trend in Italy seems to be influenced primarily by the following factors:

  • the restrictive economic policies by the European Central Bank with a generalised increase in the cost of money, together with a more complex access to debt;
  • the ability of Italian companies to attract investment opportunities by the implementation of the National Recovery and Resilience Plan (NRRP); and
  • the acceleration of internationalisation processes.

In the past 12 months, the industrial and chemicals, consumer markets, and technology sectors experienced significant M&A activity. The energy sector had an overall slight contraction (-2%) compared to the previous year, with opposing dynamics between sub-sectors: the green energy segment grew significantly, but the more traditional oil and gas segment had some difficulties.

The means of acquisition of listed companies typically involve a takeover bid, with a cash tender offer or, in whole or in part, other considerations, such as securities. Takeover bids may be divided into mandatory and voluntary takeovers. Alternative means of acquisition of both listed and unlisted companies involve direct or reverse merger with the target company.

The means of acquisition of unlisted companies normally involve private negotiations between the parties and the consideration is paid in cash. Several guarantees may be provided upon completion of the transaction depending on the specific needs of the parties involved.

It is also possible for the seller to make a contribution to the activities of interest to the purchaser, to a special-purpose corporate vehicle (SPV) and with the subsequent transfer to the purchaser of the holdings in the same SPV.

The consideration mostly used in the transactions is cash, while share deals are rare.

The primary regulators for M&As in Italy are:

  • the Bank of Italy, which supervises the activities of banks and financial intermediaries;
  • the National Commission for Companies and the Stock Exchange (CONSOB), which supervises all listed companies and the market generally;
  • the Italian Antitrust Authority (Autorità Garante della Concorrenza e del Mercato or AGCM);
  • the Italian Insurance Regulatory Authority (Istituto per la Vigilanza sulle Assicurazioni or IVASS);
  • the Italian Electronic Communications and Media Authority (Autorità per le Garanzie nelle Comunicazioni or AGCOM) for the media and telecommunications industries; and
  • the European Central Bank (ECB).

The Golden Power Regime

The measures put in place by the Italian government to fight the negative effects of the COVID-19 pandemic include Decree-Law No 23/2020 (the “Liquidity Decree”), which has extended the scope of application of the “Golden Power” regime, a system of special intervention powers of the Italian State already provided for by Decree Law No 21/2012 (the “Golden Power Decree”), the purpose of which is to safeguard strategic sectors of national interest.

The Golden Power regime has gone beyond the former principle of “privileged participation” which assigned the State a “golden share” with special prerogatives and rights (such as influencing the decisions of the companies concerned) and put in place a new system according to which the State receives certain “Golden Powers” exercisable in the event of extraordinary transactions involving companies operating in national strategic sectors.

The areas of application of the Golden Power regime, as amended by the Liquidity Decree, are defence, national security, energy, transport, communications, health, agribusiness, and finance (including credit and insurance), and have been gradually extended with subsequent measures, to include the telecommunications sector and 5G technology.

See 3.1 Significant Court Decisions or Legal Developments for further information.

Regulatory Shield

In relation to these sectors, a regulatory “shield” has been introduced according to which the Italian government has, inter alia, the right to:

  • Dictate specific conditions to guarantee the protection of essential State interests.
  • Veto the adoption of corporate resolutions, mainly concerning:
    1. the amendment of statutory clauses relating to the transfer of the headquarters or the corporate purpose (oggetto sociale) abroad;
    2. mergers;
    3. demergers; and
    4. dissolution or sales of the company, branches of company, subsidiaries, rights of enjoyment or use of tangible and intangible assets, as well as the assumption of constraints that condition their use.
  • Oppose the purchase of investments by a subject different from the Italian State or by subjects controlled by the latter, which lead the buyer to exercise, directly or indirectly, also through subsequent acquisitions, through a third party or through related subjects, voting rights that could compromise the interests of defence and national security.

Under Italian antitrust law enacted by Law No 287/1990, as amended, all mergers and acquisitions involving undertakings with aggregate turnover in Italy exceeding EUR517 million, and when the aggregate domestic turnover of each of at least two of the undertakings concerned exceeds EUR31 million, must be previously notified to and authorised by the Italian Antitrust Authority (Autorità Garante della Concorrenza e del Mercato or AGCM). These are the thresholds published on 21 March 2022 and they are adjusted annually. Both thresholds need to be met to trigger the need for any notification.

Article 32 of Law No 118/2022 inserted a new paragraph 1-bis into Article 16 of Law No 287/90, which makes some changes to the merger control regulations, particularly for certain types of so-called sub-threshold transactions. It is in fact provided that the Antitrust Authority may require the undertakings concerned to notify a concentration operation within 30 days even in the event that only one of the two aforementioned turnover thresholds is exceeded, or in the event that the total turnover achieved globally by the set of undertakings concerned is more than EUR5 billion, if there are concrete risks for competition in the national market, or in a relevant part of it, also taking into account the detrimental effects on the development and diffusion of small enterprises characterised by innovative strategies, and no more than six months have elapsed since the completion of the transaction.

In cases where the transaction results in a change of the employer for the employees working in the relevant business, the acquirer of a business should take account of the employment law regulations applicable to a transfer of business or going concern. In the case of companies employing more than 15 employees, a prior trade union consultation procedure should be carried out. This is not applicable when the transaction involves the sale of shareholdings, as there will be no change in the employer, unless otherwise provided for by collective bargaining agreements in certain sectors.

The legislation applicable in the period after the transaction has been completed to be taken into consideration is the following:

  • dismissals (which will vary also according to the date of hiring and the number of employees);
  • health and safety at the workplace, including, without limitation, compliance with anti-COVID-19 protocols;
  • part-time work and remote work;
  • fixed term employment contracts; and
  • compliance with the compulsory hiring of disabled employees.

The provisions laid down by collective bargaining agreements at a national and company level should also be taken into consideration, as they govern a large part of the employment relationship, including, without limitation, minimum salaries and job levels.

Under the Golden Power regime, the following acquisitions must be notified to the Prime Minister’s Office (Presidenza del Consiglio dei Ministri) by the purchaser, within ten days, together with any information useful for a general description of the acquisition project in relevant sectors, the purchaser and its area of operation:

  • the purchase for any title of shareholdings by foreign parties, including those belonging to the European Union, of such significance as to determine a permanent establishment of the purchaser by reason of the assumption of control of the company whose shareholding is the subject matter of the purchase, pursuant to Article 2359 of the Italian Civil Code and Legislative Decree No 58; and
  • the purchase of shareholdings by foreign parties not belonging to the European Union which assign a share of voting rights or capital equal to at least 10%, taking into account the shares or units already directly or indirectly owned, and the total value of the investment is equal to or greater than EUR1 million.

Threat of Serious Prejudice

If the purchase of any such asset of strategic importance involves a threat of serious prejudice to the essential interests of Italy or a danger to security or public order then, within 45 days from the notification, and by a decree of the Prime Minister, the effectiveness of the purchase may be made subject to the purchaser's assumption of commitments aimed at guaranteeing the protection of the aforementioned interests. If the government does not respond during the 45-day period, the transaction is considered authorised under the principle of silence-approval (silenzio assenso).

The government’s assessment on the transaction is based on objective and non-discriminatory criteria and also takes into account any positions expressed by the European institutions. The governmental check is aimed at verifying whether the post-transaction situation is likely to jeopardise the safety and continuity of supplies, plants and essential production chains as well as whether it can, in general, threaten the national interest.

Violations

Violation of the procedure entails the application of a penalty ranging from the suspension of voting rights to the nullity of the deeds; in most cases, an administrative fine is also applied, for an amount of up to double the value of the transaction and, in any event, not less than 1% of the turnover achieved by the companies concerned in the last financial year, in addition to the obligation to restore the quo ante status.

As mentioned in 2.3 Restrictions on Foreign Investments, the most significant legal developments related to M&As are the recent measures extending the scope of application of the “Golden Power” regime, a system of special intervention powers of the Italian State the purpose of which is to safeguard strategic sectors of national interest, enacted by the Golden Power Decree and extended by the Liquidity Decree.

Decree Law No 228 of 30 December 2021 and Decree Law no 21 of 21 March 2022 have further extended the scope of application of the obligation to notify the acquisition of shareholdings and the related Golden Powers exercisable by the Italian government including those which result in the assumption of control even by any kind of entity belonging to the European Union.

The extension of such notification obligation concerns:

  • strategic assets, including all those connected to the critical factors referred to in Article 4, paragraph 1, letters a), b), c), d) and e) of Regulation (EU) 2019/452, including those relating to the financial, credit and insurance sectors; and
  • the acquisition of shareholdings, including those which result in the assumption of control by any foreign entity, even belonging to the European Union, as well as those which assign a share of voting rights or capital equal to at least 10%, 15%, 20%, 25% and 50% to foreign parties not belonging to the European Union, regardless of the assumption of corporate control.

Regulations implementing the Golden Power regime were also enacted by the Italian government with DPCM No 179 of 18 December 2020, on the identification of assets and relationships of national interest in the sectors referred to in Article 4, paragraph 1, of Regulation (EU) 2019/452 of the European Parliament and of the Council, of 19 March 2019, pursuant to Article 2, paragraph 1-ter, of the Golden Power Decree, and with DPCM No 180 of 23 December 2020 on identification of assets of strategic importance in the energy, transport and communications sectors, pursuant to Article 2, paragraph 1 of the Golden Power Decree.

A new “Regulation governing the coordination activities of the Prime Minister’s Office preparatory to the exercise of special powers under Decree-Law No 21/2012, as amended, pre-notification and measures to simplify procedures” was set forth in DPCM No 133/2022, which entered into force on 24 September 2022. The main innovations envisaged can be summarised as follows:

  • introduction of measures aimed at concluding proceedings for the non-exercise of special powers without a special resolution of the Council of Ministers, if unanimity is reached within the Coordination Group and in the absence of requests to the contrary from the companies involved in the proceedings (Article 6 of the Regulation);
  • introduction of a comprehensive framework for pre-notification, in order to reduce the impact of the discipline of special powers on the economy and the many so-called “prudential” notifications (Article 7 of the Regulation); and
  • repeal and replacement of the DPCM of 6 August 2014, on “Discipline of co-ordination activities of the Presidency of the Council of Ministers preparatory to the exercise of special powers on corporate structures in the defence and national security sectors, and on activities of strategic importance in the energy, transport and telecommunications sectors”, in order to avoid complex interpretative operations of stakeholders, ensure effective co-ordination and simplify the procedure (Article 15 of the Regulation).

Significant changes to takeover legislation were enacted with the Liquidity Decree, which extended the scope of application of the Golden Power Decree in an effort to protect Italian assets from hostile takeovers by foreign investors.

Stakebuilding strategies are not customary in Italy considering, in particular, the entry into force of the Market Abuse Regulation.

In relation to shares, under Article 120 of the Consolidated Act on Finance enacted by Legislative Decree No 58/1998 (TUF), as last amended by Legislative Decree No 49/2019 in force as of 10 June 2019), parties with a shareholding in an issuer of listed shares, having Italy as their home member state, in an amount greater than 3% (5% if the issuer is an SME) must notify the company and CONSOB. Under Article 117 of CONSOB Regulation (the Regulation No 11971/1999, as last amended by Resolution No 21016/2019 in force as of August 2019), parties holding the share capital of a listed company must notify the investee company and CONSOB:

  • when the threshold of 3% is exceeded, if the company is not an SME;
  • when the thresholds of 5%, 10%, 15%, 20%, 25%, 30%, 50%, 66.6% and 90% are reached or exceeded; and
  • when the investment falls below the thresholds indicated above.

Financial Instruments

Under Article 119 of CONSOB Regulation, parties who, directly or through nominees, trustees or subsidiary companies, hold an investment in financial instruments, must disclose to the investee company and to CONSOB when:

  • the thresholds of 5%, 10%, 15%, 20%, 25%, 30%, 50% and 66.6% are reached or exceeded; and
  • the investment in financial instruments is reduced under the thresholds set forth above.

Under Article 122-bis of CONSOB Regulation, anyone who holds financial instruments for which the appointment of a member of the board of directors or of the board of statutory auditors is reserved, shall inform the issuer and CONSOB if either:

  • it is able to elect on its own a member of the board of directors or of the board of statutory auditors, or it ceases to be able to do so; or
  • it exceeds, with respect to the aggregate amount of financial instruments issued in the same category, the thresholds of 10%, 25%, 50% and 75%, or falls below such thresholds.

In the case of a tender offer, the main hurdles are:

  • any antitrust pre-merger control;
  • regulatory approval of the offering document by CONSOB; and
  • approval of the financing bank.

The by-laws of a limited number of listed companies provide for limits on share ownership.

Dealings in derivatives are allowed, upon certain conditions as described in 4.5 Filing/Reporting Obligations.

Dealings in derivatives are subject to the condition that net short positions must be disclosed if they are greater than 0.1% (and following 0.1% steps). Long positions must also be disclosed in relation to both cash settled and physical delivery instruments, when the aggregate position (inclusive of the shares owned by the investor) crosses (upwards or downwards) 5%, 15%, 20%, 25%, 30%, 50% and 66.6% of a listed company’s voting capital (no offset with any concurrent short position is allowed).

Any entity that comes to hold a participation greater than 5% (if mandated by CONSOB) 10%, 20% and 25% of the voting capital in a listed company must disclose the following to CONSOB, the target company and the public: 

  • how the acquisition has been financed;
  • if it is acting alone or in concert;
  • if it intends to increase its participation, acquire the control of the target company or assert an influence over management;
  • its intentions with respect to current or future shareholders’ agreements; and
  • if it intends to propose the expansion of the board or the removal of the directors.

According to the Market Abuse Regulations, a deal must be disclosed when there is a reasonable expectation that the transaction will take place (“reasonable expectation test”). Disclosure may therefore take place prior to the execution of binding documentation but must specify the effective status of the process.

Market practice on timing of disclosure may differ from legal requirements since the parties may delay disclosure when an early disclosure could jeopardise the negotiations or the completion of the transaction.

The Need for Due Diligence

When an M&A transaction is going to be carried out, it is very important for a careful legal due diligence to be carried out by specialised outside legal counsel. It is usual in an investigation to check the actual contents of a business activity or some of its aspects in order to assess them from a legal and economic standpoint. In particular, it consists of gathering, examining and processing documents and information on the business and its parts.

Its fundamental purpose is that of reducing the discrepancies in information between the seller and the potential purchaser on the target of the transaction. By taking a “photograph” of the legal situation of the target business and its main legal risks, potential purchasers can confirm whether they are interested in the acquisition, its purpose and feasibility as initially envisaged, and they can identify the best possible structure to achieve it. Furthermore, a careful legal due diligence will allow the initial economic valuation, the purchase price and any adjustments of it to be confirmed or corrected, providing valid support also in the negotiation of the representations and warranties to be requested from the seller.

Broad Scope of Legal Due Diligence

The scope of legal due diligence is very broad, covering the following fields:

  • the corporate situation (including prior transactions that may have involved the target company);
  • main business and financial contracts;
  • the regulatory and administrative situation;
  • real estate;
  • employment;
  • trade marks and patents;
  • insurance; and
  • litigation.

Particular care must be taken with respect to litigation, both commenced by the target and that against it, as also in the former case significant contingent liabilities could exist (losing the case and having to bear the legal costs, and also dangerous counterclaims). Furthermore, the investigation should extend not only to pending litigation but also to that threatened.

If listed companies are involved, the scope is usually narrower or has higher materiality thresholds, given the large amount of publicly available information. Normally, a legal due diligence is inserted into the negotiation process which has already been started up between the seller and the buyer.

COVID-19

In general terms, the pandemic had an impact on the progress of transactions, and in certain cases it specifically affected the due diligence phase during negotiations. This may entail, should the negotiations be resumed after a significant period, the specific need to perform a new due diligence exercise.

It is customary, during the negotiation phase, for the parties to enter into standstills and/or exclusivity agreements. Standstill mechanisms are frequent in transactions involving listed companies. Standstills and exclusivity are considered as valid means to protect the specific interests of the parties, which may vary depending on the nature of the transaction. This protection can be obtained either by providing specific clauses in the letter of intent or in a non-disclosure agreement or by entering in separate specific agreements.

The terms and conditions of the offer are set forth in a definitive agreement and disclosed to the public.

The length of process in acquisition/sale transactions may vary on a case-by-case basis depending on the structure of the transaction and on the complexity of negotiations.

In the first quarter of 2022, transactions continued to experience practical delays in terms of length of the entire process, mostly due to the COVID-19 pandemic and measures restricting the movement of persons, such as the “green certification”. In some cases, the implementation of digital means aimed at guaranteeing the meetings and negotiations between the parties, notwithstanding the lockdown and social distancing measures, played a crucial role in the positive outcomes of transactions.

In addition, from a regulation standpoint, other emergency governmental interventions caused slowdowns in the acquisition/sale processes. In this respect, it worth mentioning the Golden Power regulation according to which, subject to certain conditions, it is necessary to submit a notification of the intended investment to the Italian authorities. This notification process may have a delaying impact on the transaction as a whole.

According to Article 106 of the TUF, whoever has acquired (directly or indirectly) a shareholding of over 30% of the ordinary share capital of a publicly listed company is obliged to launch a takeover bid on all the remaining ordinary shares. The obligation also arises for whoever already holds 30% of voting shares and acquires more than 5% of the share capital.

The consideration offered may be cash, existing or new shares, or other securities (such as convertible bonds or warrants), or a combination thereof. In the case of mandatory takeover, however, the bidder is required to offer cash payment as an alternative if the offer includes securities that are not traded on any EU regulated market.

CONSOB must receive and examine all necessary documentation relating to the guarantees at least one day before the date of publication of the offer document, as the bidder must provide evidence that the consideration, whether in cash or securities, is available in advance of the acceptance period.

Mandatory takeover bids cannot be subject to any conditions, while voluntary bids may be subject to certain terms.

Common conditions to voluntary tender offers are acceptance thresholds, to ensure that the bidder achieves control of the target (or its de-listing), and antitrust/regulatory clearances. The bidder may include a lenders’ waiver to change-of-control provisions under the relevant financing agreements as a condition to the offer.

The usual acceptance threshold is 50% plus one share (to be calculated by also taking into consideration any shares already owned by the bidder). The bidder may reserve the right to waive the condition if the acceptance levels allow it to control the target on a de facto basis.

There are no provisions preventing business combination being conditional on the bidder obtaining financing.

The most common security measure is an equity commitment letter from the purchaser’s shareholders to cover the amount of the consideration.

Minority shareholders can be granted board representation and veto rights aimed at protecting the essential risk profile of their investment covering: 

  • extraordinary transactions (mergers, spin-offs, disposals of assets);
  • capital increases not at fair market value;
  • the assumption of further indebtedness over given thresholds; and
  • resolutions of the extraordinary general meeting. 

The above-mentioned veto rights are deemed not to create a joint control with the minority shareholder.

In Italy, voting rights can be exercised by proxy upon certain conditions.

According to the so-called “Cure-Italy” Decree, and the “Milleproroghe 2023” Decree, the following provisions are applicable to shareholders’ meetings called by 31 July 2023.

Resorting to the Institution of the Appointed Representative

All companies with listed shares can resort to the institution of the appointed representative pursuant to Article 135-undecies of the TUF for the exercise of voting rights at ordinary and extraordinary shareholders’ meetings, even if any clauses in the by-laws provide otherwise. Moreover, the same companies can also provide in the notice of call that participation in the meeting be carried out exclusively through said representative and that they be granted proxies and sub-delegations pursuant to Article 135-novies of the TUF and as an exception to Article 135-undecies, paragraph 4 of the TUF.

The above-mentioned provisions also apply to companies admitted to trading on a multilateral trading system and to companies with shares widely distributed among the public.

Obligation to Appoint Said Representative

A company with listed shares has to appoint the representative referred to above, if it does not adopt remote voting methods.

According to Article 111 of the TUF, squeeze-out with the forced and simultaneous purchase of all the remaining shares is allowed if the bidder has come to hold at least 95% of the target’s share capital, after a tender offer on all the target shares. The squeeze-out price is determined by law and is usually equal to the price of the preceding bid.

If the bidder has not reached the squeeze-out threshold (respectively set at 90% and 95%), it may merge the listed target company into a non-listed entity, with the target residual shareholders having a right of withdrawal from the company.

Commitments to tender are common in friendly offers and are usually entered into prior to the launch of the offer (less frequently during the offer period). Their execution and contents must be disclosed to the public.

The shareholder is only allowed to withdraw from the commitment to tender the shares in the case of a competing higher offer.

A bid is made public as soon as the relevant decision has been made by the bidder or the relevant obligation has arisen, provided that it has obtained the financial resources to pay the consideration.

In the case of a business combination, if the absorbing entity is not listed, the parties must make available the following information: 

  • the merger plan, which contains the exchange ratio;
  • the management bodies’ reports, containing the illustration of the legal and business reasons for the transaction;
  • the independent expert’s report on the exchange ratio; and
  • the involved entities’ past three annual financial statements and the transaction reference statement of account.

If the absorbing entity is listed and the shares to be issued amount to more than 20% of the share capital, it is also mandatory to publish an information document containing: 

  • a description of the combination transaction from a legal and business standpoint;
  • the risk factors in relation to the resulting entity’s business and the shares to be issued;
  • a description of the rights attached to the shares to be issued; and
  • certified pro-forma accounts for the combined entity.

All parties involved in a transaction must disclose three prior annual financial statements and transaction reference statements of account.

When listed companies are involved, the pro-forma accounts (to be certified and drawn up in accordance with International Financial Reporting Standards and the interpretation provided by the International Financial Reporting Interpretations Committee) are also required.

The merger plan is made available to the public.

The manager/independent expert’s reports are disclosed only to the shareholders. If listed companies are involved, all the documentation must be made available to the public. The merger resolutions and implementation deed are carried out through public notarial deeds.

The directors of the target company must manage any conflict of “corporate interests”: on the one hand, they must protect the right of shareholders to sell. This right constitutes a “corporate interest” that as such must be facilitated; on the other hand, they must preserve the right of the target company to confidentiality, on penalty of liability under Article 2391, last paragraph and 2392, first paragraph, Italian Civil Code.

The assistance of a specialised legal counsel in the due diligence is also important with respect to the possible liability of the directors of the buyer who have decided to acquire a target which then turns out to be detrimental. Since the diligence of the directors, under Article 2392, first paragraph, Italian Civil Code, “can never affect management choices (…), but only the omission of those precautions, preventive verifications normally required for a choice of this type” (see Court of Cassation, 28 April 1997, No 3652), the performance of an appropriate due diligence must normally be considered to be a mandatory act.

It is not common for boards of directors to establish special or ad hoc committees in a business combination. Ad hoc committees are formally established only within the more complex transactions; otherwise, the Chief Executive Officer is put in charge of the process and periodically reports to the board. In the event of a conflict of interest, eg, in related parties’ transactions, the independent/non-related directors must take a prominent role in the decision-making process.

The target directors in Italy must take a stance on the offer, recommending whether to tender the shares from a financial fairness standpoint (with the help of an independent fairness opinion). They may take defensive measures (see 9.2 Directors’ Use of Defensive Measures) only with the authorisation of a general meeting (in the absence of a prior authorisation under the by-laws).

Under Italian law, a court-appointed independent expert must render a fairness opinion on the combination exchange ratio. Furthermore, the involved entities’ directors may retain their own advisers on a voluntary basis.

Director’s conflict of interest represents one of the most common subjects of corporate litigation in Italy. Referring to listed companies, CONSOB sometimes opens investigations to verify compliance with the related parties’ transaction rules.

Hostile takeovers are rarely carried out in Italy. The TUF admits friendly as well as hostile takeover bids. 

Directors of the target company can take defensive measures, ie, any measure to prevent or frustrate the success of the takeover. This type of action is aimed at raising the costs or reducing the benefits for the bidder and can be adopted by the target before or after the bid has been launched. The TUF regulates defensive measures in principle but does not provide any rules detailing cases or circumstances which would amount to defensive measures.

The effectiveness of defensive measures is affected by the “passivity rule” (ie, any defensive action in response to an offer must first be approved by the target company’s shareholders under Article 104 of the TUF) and by the “breakthrough” (ie, restrictions on voting rights and limitations on the transfer of securities shall have no effect, under Article 104-bis of the TUF).

Typical defensive measures available to the company are:

  • share capital increase by the target company, or the purchasing of its own shares by the target company;
  • conversion of ordinary shares into other financial instruments, or merger with other companies;
  • sale of assets; and
  • awarding “golden handshakes” to the target’s directors if they are removed from office.

Listed companies have the right to waive the passivity rule, in whole or in part, by amending their articles of association and by communicating this decision to CONSOB. While the offeror’s board of directors acts independently, that of the target requires the previous authorisation of the shareholders’ meeting in order to take defensive measures.

The defensive measures described above have not changed as a result of the pandemic.

When the directors enact defensive measures, they have to obtain the prior authorisation of the general meeting (in the absence of a prior blanket authorisation under the by-laws).

The position of the directors on the bid and their recommendation on whether to offer the shares from a financial equity point of view are not binding on the shareholders or on the bidder. If they seek to take defensive measures, in the absence of prior authorisation under the by-laws, the directors must obtain prior authorisations from the general meeting.

Within the field of M&A deals referring to non-listed companies, arbitration is more frequent than litigation. Litigation in connection with M&A is not common in Italy.

M&A litigation takes place after the closing, usually within the following two years.

In 2022, court activities have gradually been reinstated on a regular basis. The main lesson learned is that the search for a settlement agreement by the parties turns out to be the best solution, especially when the dispute has dragged on for a long time.

The scenario that has emerged following the outbreak of COVID-19 and the resulting greater market volatility has widened the operating space for greater shareholder activism in the last months.

The focus of activism is aimed at obtaining a better overall management of the investee company, direct representation on the board or an increase in the price of the takeover bid.

Sometimes, activists publish a manifesto recommending that the company make certain transactions that, in their view, would raise share prices. Their aim is to pursue a better overall management and board representation.

Activism has not been considerably affected by the pandemic, considering the broad alternative means offered by the social media for this purpose.

Activists have tried to interfere with ongoing transactions through proxy struggles and litigation, attempting to block the implementation of a transaction or obtain an increase in the takeover bid price.

Nunziante Magrone

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Milan
Italy

+39 02 6575 181

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f.alvino@nmlex.it www.nunziantemagrone.it
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Trends and Developments


Authors



Delfino e Associati Willkie Farr & Gallagher LLP (D-WFG) has offices in Rome and Milan, where it operates in association with Willkie Farr & Gallagher LLP, an elite New York law firm employing about 1200 attorneys in 13 offices located in New York, Washington (DC), Houston, Palo Alto, San Francisco, Chicago, Los Angeles, Paris, Brussels, London and Frankfurt in addition to its Italian presence. D-WFG is one of the leading law firms in Italy specialising in public and private M&A, including distressed M&A, equity capital market and SPACs, for financial and strategic investors. The Italian firm has assisted on the occasion of large transactions involving public companies and acquisitions of medium and small caps in a wide variety of industries, including insurance and financial, pharma, fashion and design, automotive, steel, energy, infrastructure and real estate.

Introduction

At the end of 2021 and the beginning of 2022, the hope that the COVID-19 crisis could be consigned to the history books led to deal makers enjoying a cautiously optimistic mood.

That changed in February 2022 when Russia’s invasion of Ukraine sent shockwaves across Europe and the world. This invasion has had a devastating effect on Ukraine and repercussions all over the world: alongside the human suffering and destruction in Ukraine, the war dramatically affected energy prices throughout Europe, stocking up inflationary pressures that were already building as a result of government intervention during the pandemic. In addition, the inflationary pressures prompted central bankers to take a hawkish stance and start a process of interest rates increase, resulting in an impact on M&A that could not be underestimated.

In Europe, aside from the direct devastation caused by the war, the result has been weakening consumer confidence and a cost of living crisis combined with financial markets volatility, prompting business to re-evaluate their forecasts, in turn leaving deal makers to reassess the value of potential targets and the cost of financing acquisitions.

Contrary to expectations, the wheels of commerce continued to turn and deal makers adapted to the fast-changing circumstances.

2022

As anticipated, in Italy and Europe, 2022 was a turbulent year due to several factors that increased volatility and uncertainty.

The development of vaccines and the monetary, fiscal and financial measures were expected to favour global recovery, which was in fact generally expected by most experts. Russia’s invasion of Ukraine upended this recovery and has caused the following:

  • economic risks have risen sharply;
  • geopolitical-social tensions have escalated; and
  • poverty and inequality have further increased.

Prices were already creeping up in 2021 due to the rapid rebound from the pandemic and related supply chain constraints, but following Russia’s invasion of Ukraine, inflation soared and become much more pervasive around the world. In 2022, the higher inflation and lower growth have been the hefty price that the global economy paid for Russia’s war against Ukraine, and the consequent fall of real wages is slashing purchasing power in many countries.

At the same time, central banks around the world have increased interest rates to curb inflation and anchor inflation expectations in their respective economies.

In this scenario, governments have done a lot to ease the economic pain from high energy and food prices, including price caps, subsidies and reduced taxes.

Notwithstanding the current high level of public debt, the Italian government managed to respond to the sudden increase in energy prices with measures to contain costs for gas and electricity users. In order to contain fuel costs and to support the transportation sector, such measures were also extended in favour of large companies and, no doubt, the implementation in Italy of the EU’s National Resilience and Recovery Plan also helped.

Significant Measures and Changes in Italian Law

On March 2022, the Italian government approved the “2022 Energy Decree” in order to cut electricity, gas and fuel prices. In particular, companies were granted a tax credit for the extra expenditure incurred for the purchase of fuel used in the first calendar quarter of the year 2022.

On 14 July 2022, the Italian government definitively approved the Law Decree no 50 of 17 May 2022, published on the Official Gazette on 15 July 2022 (also known as the “Aids Decree”).

The Aids Decree has multiple provision with the common objective of introducing measures aimed at facing the systemic consequences of the Ukrainian crisis in relation to national energy policies, companies’ productivity and attractiveness of investments.

Moreover, in June 2022 the Italian Insolvency Code was further amended by means of the Legislative Decree no 83 of 17 June 2022 (which implemented EU Directive 2019/1023 on restructuring and insolvency). The new insolvency code (the “Code”) came into force on 15 July. In line with the above EU Directive, the Code’s aim is to ensure that distressed situations are detected as early as possible and companies experiencing a crisis may rapidly react and avail themselves of the preventive restructuring instruments made available. These instruments are now more flexible, offer enhanced contractual restructuring solutions and have been made more easily accessible.

In the middle of the COVID pandemic in 2020, the Italian government enacted stricter foreign direct investment (FDI) regulations, which now require filing of information with the government on the occasion of certain M&A activity involving companies operating in a number of sectors defined as “strategic”. In 2022, in order to facilitate the filing and authorisation process for the so called strategic M&A, the Italian government also introduced a pre-notification procedure in the Italian investment screening mechanism, which allows companies to obtain a preliminary assessment on the applicability of the Italian FDI regulations to the proposed transactions.

On 5 August 2022, the Italian Parliament adopted the “2021 Annual Competition Law” (ACL) which entered into force on 27 August 2022, amending in various respects the Italian Competition Law no 287 of 1990. In particular, the ACL:

  • introduces the possibility for the Italian Competition Authority (“Authority”) to request the notification of below-threshold mergers;
  • aligns the Italian merger control regime to well-established EU principles and rules;
  • extends the Authority’s enforcement powers;
  • introduces a settlement procedure; and
  • strengthens the rules against all abuse of economic dependence.

On 29 December 2022, the Italian Parliament approved the 2023 budget effective as from 1 January 2023. The budget provides for EUR35 billion additional expenses, of which EUR21 billion is dedicated to measures to reduce the impact of high energy prices for households and businesses. Among the main interventions is a significant support to green energy development. The following may also be mentioned:

  • the elimination of improper bill charges;
  • the reduction of VAT to 5% on natural gas consumption; and
  • the refinancing until 30 March 2023 of the tax credit for the purchase of electricity and gas natural, which goes from 30% to 35% for bars, restaurants and shops, while for energy-intensive and gas-intensive companies it rises from 40% to 45%.

Global M&A in 2022

In line with economic trends, in 2022 the global M&A activity declined sharply.

More precisely for M&A, 2022 was a tale of two halves. The beginning of the year was active while, after the first half of the year, the M&A activity slowed considerably as a result of the significant dislocation in financing markets, an increasingly volatile stock market, declining share prices, inflation, rapidly increasing interest rates, war in Europe, supply chain disruption and the possibility of a global recession.

As PwC noticed in their Global M&A Trends 2022, global M&A volumes and values declined in 2022 by 17% and 37% respectively from record-breaking 2021 levels, although both remained above 2020 and pre-pandemic levels. The high levels of M&A activity from 2021 continued into the early part of 2022, but as headwinds continued to grow, each successive quarter reported a decline in deal activity compared to the previous year. Deal volumes and values declined by 25% and 51% respectively in the second half of 2022 compared to the same period in the prior year.

2022 global initial public offering (IPO) proceeds were also down more than 70% compared to 2021. This was largely the result of the significant drop in US IPO activity, with IPO proceeds falling more than 90% compared to last year, together with European and UK IPO markets remaining largely closed.

On the same line, in 2022 the market for special purpose acquisition companies (SPACs) considerably shrank: according to S&P Global Market Intelligence data in 2022 there were just 86 SPAC IPOs, compared to 610 in 2021.

The Resilience of the M&A Market

In 2022, M&A activity slowed compared to 2021, but despite the difficulties and the externalities it remained at pre-pandemic levels, confirming the attractiveness of the market even in hard times.

M&A players have clearly shown that they can easily adapt to new circumstances and deal levels remained robust even though investors may appear to show greater caution in the pursuit of targets.

The Italian M&A Market in 2022 and the Relevant Transactions

As noted in the KPMG 2022 M&A market report, the Italian M&A market, despite uncertainties in the macroeconomic and geopolitical scenario, demonstrated a remarkable degree of resilience. In 2022, 1,184 deals were concluded (a decrease of 2.5% compared to 1,214 deals in the same period in 2021) for a counter value of around EUR80 billion, compared to EUR100 billion in 2021.

2022 was a particularly active year for foreign investors, who showed their interest in Italian targets. There were, in fact, 421 transactions (an increase of 15% compared to 2021) with a counter value of around EUR29 billion (an increase of 67% compared to EUR17 billion in 2021). Therefore, in terms of number of deals, the year maintained a good trend, with all quarters characterised by high activity, a sign of high dynamism on the part of companies, funds and investors.

The incidence of megadeals (ie, deals with an acquisition value of more than EUR 1 billion) remained significant, with 15 deals in 2022, down from 18 in 2021.

These include:

  • in the infrastructure sector, the acquisition of Atlantia by Blackstone and the Benetton family for a value of EUR33 billion and the investment in Inwit (Infrastrutture Wireless Italiane) made by a consortium led by Ardian, a private equity fund;
  • in the pharmaceutical and biomedical sectors, private equity has tapped into the strengths of the Italian pharma industry, for example, Kedrion acquired by Permira, the investment in Doc Generici by Texas Pacific Group and the investment in Neopharmed Gentili by NB Renaissance and Ardian;
  • in the retail sector, the Swiss group Dufry invested in Autogrill, valued at EUR3.7 billion;
  • in the industrial sector, the transaction involving BC Partners and Bain Capital in Fedrigoni; and
  • in the insurance sector, the acquisition of PartnerRe by Covea.

In 2022, financial investors (mostly private equity and, for smaller deals, family offices) have made important investments in Italy. The increasingly significant role of private equity as a financial partner to support the growth of Italian family business has been confirmed, especially in mid cap transactions. In 2022, private equity concluded 131 deals for a counter value of over EUR19 billion (compared to 200 deals for EUR12.1 billion in 2021).

Significantly, among the 15 largest acquisitions in Italy, 10 saw the involvement of private equity funds. These included:

  • the aforementioned acquisition of Atlantia by Blackstone;
  • the Fedrigoni transaction involving BC Partners and Bain;
  • the acquisition of Kedrion by Permira and Abu Dhabi Investment Authority; and
  • finally, the acquisition of DOC Generici by Texas Pacific Group.

Most Active Sectors

In so far as the number of transactions is concerned, the technology, business services and infrastructure sectors show the most positive trends. In particular, the technology sector has shown itself to be agile and able to seize new opportunities in a dynamic manner, mainly thanks to the information and communication technologies (ICT) services and software segments, with an increasingly important role played by digital enablers (eg, cloud, cybersecurity, IoT, AI). In addition, the need to better integrate technology into operational and business processes is also driving investment in this area by companies active in other sectors (in particular, retail manufacturing, mobility and transport).

In relation to the infrastructure and transport sectors, since the beginning of the COVID-19 pandemic this sector has seen great attention by the Italian government through interventions aimed at supporting growth and employment. The results of these initiatives have had significant impacts also on transactional activity, which in 2022 expressed substantial growth, almost doubling the number of transactions and investment volume. In addition, the transport sector, in its largest sense, was certainly a driving force, with good investment activity also being seen in the logistics and goods handling, especially in ports.

Interestingly, the more traditional sectors of made in Italy, ie, consumer goods (including fashion at large) and industrial products, which were more heavily penalised by the inflationary pressures that eroded margins and profitability, recorded a slight decrease in M&A in terms of proportion of the overall total, although they remained significant in absolute terms.

The energy sector also saw a slight contraction overall compared to last year, with different dynamics between the various sub-sectors. In fact, the alternative energy sector grew significantly, while the more traditional oil and gas sector struggled, especially in the retail segments.

Outlook and Expectations for 2023

The scenario for 2023 appears mixed, with contrasting elements of optimism and realism. International trends suggest a cautious attitude towards estimates of M&A activity in Italy in 2023. It would be difficult to beat the market trends in M&A for the second year in a row. Still, in the first quarter of 2023, the transactions have not slowed down. Some industries, for example fashion, are in a process of heavy reorganisation and increasing vertical integration, which could fuel M&A activity.

Among the additional main drivers that could fuel M&A activity in Italy in the coming year are the following.

  • The push in terms of repatriation (or “near shoring”) of Italian manufacturing, both in terms of target markets and in terms of reorganisation of supply chains. In a more fragmented global context with growing contrasts, this trend may become an important driver of M&A.
  • The energy transition with an increased awareness of sustainability issues and the drive to reduce energy costs will continue to drive investment activity in many sectors, in particular retail and consumer, oil and gas, advanced manufacturing and mobility.
  • The digital transformation and the need for significant infrastructure interventions require investments in order to meet the targets and new demands of consumers and businesses.

All of the above will be impacted by inflation and its effects on finance (including public finance) and the ability to remain a competitive manufacturing hub in sectors, such as automotive, where Italy has a lead. So far, the Italian M&A market has shown remarkable resilience and a good ability to react and respond to difficulties.

Conclusion

The resilience of M&A in Italy in 2022, accompanied by the increased role played by international financial investors, is a tribute to the attractiveness and flexible approach of Italian mid cap private companies in difficult times.

In the current year, much will depend on inflation, energy prices, the availability of raw materials and the conflict in Ukraine, but the uncertainty of financial markets is likely to generate significant M&A as companies, especially mid cap, vie to consolidate of their position.

Delfino e Associati Willkie Farr & Gallagher LLP

via Michele Barozzi 2
20122 Milan
Italy

+39 (0)2 763 631

+39 (0)2 763 636 36

mdelfino@delfinowillkie.com www.willkie.com
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Law and Practice

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Nunziante Magrone is an independent multidisciplinary Italian law firm. Thanks to the specific expertise of its professionals, the firm is able to assist its clients in all major areas of business law through its departments. Nunziante Magrone has more than 80 lawyers, with offices in Milan, Rome and Bologna. Nunziante Magrone has a strong international practice and is consistently acknowledged for its members’ expertise.

Trends and Developments

Authors



Delfino e Associati Willkie Farr & Gallagher LLP (D-WFG) has offices in Rome and Milan, where it operates in association with Willkie Farr & Gallagher LLP, an elite New York law firm employing about 1200 attorneys in 13 offices located in New York, Washington (DC), Houston, Palo Alto, San Francisco, Chicago, Los Angeles, Paris, Brussels, London and Frankfurt in addition to its Italian presence. D-WFG is one of the leading law firms in Italy specialising in public and private M&A, including distressed M&A, equity capital market and SPACs, for financial and strategic investors. The Italian firm has assisted on the occasion of large transactions involving public companies and acquisitions of medium and small caps in a wide variety of industries, including insurance and financial, pharma, fashion and design, automotive, steel, energy, infrastructure and real estate.

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