Private Equity 2023

Last Updated September 14, 2023


Law and Practice


Gianni & Origoni is an award-winning business law firm providing legal advice in all areas of commercial law. Established in 1988, our firm now comprises over 430 highly specialised lawyers based in Italy and abroad in key business hubs such as New York, London, Brussels, Abu Dhabi, Shanghai and Hong Kong. Alongside this, our network of long-standing relationships with leading law firms around the world enables us to fully assist our clients on any kind of cross-border transactions. In particular, an integrated, cross-disciplinary team of over 50 lawyers (M&A, Debt, Tax and Labour) assists Italian and foreign private equity funds in large and mid-cap acquisitions or exit transactions. The firm started assisting Italian private equity pioneers, such as Kiwi and 21 Investimenti, in the early 90s and successfully continued our leading role in the private equity market, becoming the reference legal counsel of several top players (Ardian, Blackstone, Cinven, KKR, Apax Partners, Antin, Apheon, etc).

Market instability, the cost of debt/capital and uncertainty on how businesses may evolve in the upcoming future have marked private equity transactions and M&A deals in 2023. Compared to recent years, investors have started to be more selective in assessing investment opportunities, bid processes have become less predominant compared to bilateral negotiations (except in the case of trophy assets) and alternative payment structures (mainly earn-out schemes) have become quite typical in the contractual documentation. 

Although the Italian GDP growth was a bit stronger than other EU countries in the first quarter of 2023, the macro-economic factors (ie, inflation, cost of debt, volatility of exchange rates, etc) had a strong influence on investment strategies of financial institutions and pushed private equity funds to focus on resilient or growing sectors, such as energy transition, digital transformation, pharma, healthcare and innovative technologies.

The small to mid-sized M&A market turned out to be more resilient than the large-cap segment. Actually, the increased cost of debt significantly affected large buyouts which were generally financed through high-yield bond emissions that became uncompetitive in the new challenging debt environment.

Over the past years, significant changes to the law and practice and regulation took place in Italy, with impacts on the structuring and operations of private equity funds.

  • Regulatory changes: in the financial market sector, new regulations have been issued to enhance transparency, protect investors and prevent financial instability, adding complexity to the compliance procedures that European and Italian operators must follow.
  • Environmental, social and governance (ESG): the growing emphasis on ESG has influenced private equity investments, leading to a more significant focus on sustainable and socially responsible investment strategies. Most recently, the focus on ESG matters results, inter alia, in the monitoring of certain indexes and standards in the due diligence process and may include specific undertaking in the contractual documents to develop and implement appropriate organisational structures.
  • Data protection and cybersecurity: the increasing focus on data privacy and cybersecurity has compelled private equity firms to invest in robust data protection measures and adapt to new compliance requirements, which can impact their due diligence and investment decisions.
  • Warranty and indemnity (W&I) policies: the use of W&I policies to mitigate certain risks connected to M&A transactions is becoming increasingly common in the market, even for relatively small-sized transactions. The W&I general approach to indemnities/representations and warranties (ie, due diligence disclosures, etc) has somehow influenced market practice in transactions where the W&I is not used, rendering certain negotiation arguments that were highly debated until recently more acceptable.

One of the main recent developments with respect to regulatory issues is the broadening of the Italian mechanism for the screening of foreign investments (so-called “golden power”). Indeed, since the outbreak of COVID-19, the type of assets considered strategic has significantly expanded. Moreover, acquisitions from EU entities (including Italian ones) became subject to notification duties. In particular, if the investor is a private equity fund, the scrutiny to assess compliance with the “golden power” rules could also include limited partners, specifically when they could have indirect influence on the managing decisions given the stake they hold in the fund.

From a deal perspective, although in private-equity transactions the foreign direct investment (FDI) procedure almost always has a positive outcome, the time period for obtaining the FDI clearance (ie, 45 days) shall be considered when scheduling the closing. In this respect, a new discipline was recently introduced, allowing the parties to notify the transaction in advance in order to get a pre-clearance in 15 days.

PE operators always carry out due diligence exercises, whose level depends on several factors:

  • the size of the target;
  • the buyer’s knowledge of the sector;
  • the nature of the counterparty (entrepreneur vs institutional operator);
  • the type of selling procedure (bilateral vs bid process); and
  • the timing and type of investment.

These are some of the elements that may impact how the due diligence is carried out. 

Usually, the due diligence activity is quite complete and exhaustive, in particular when a W&I policy is involved in the transaction which requires a comprehensive and detailed legal due diligence report. In other circumstances, the legal due diligence exercise is conducted on a high-level basis. Especially in competitive bids, an initial high-level diligence is followed by an additional confirmatory analysis after signing the binding offer and/or the contractual documentation.

The legal due diligence activity typically consists of the review of documentation organised in a virtual data room. It is common for the buyer to submit questions (addressed to the seller, its advisors and/or the management of target) to request additional information or clarify potential issues identified in the context of the diligence activity. Sometimes, the documental due diligence exercise may be integrated with management interviews.

In bilateral transactions, the set of documents to be reviewed is uploaded to a virtual data room based on a due diligence checklist prepared by the buyer and there are no particular limitations in terms of the duration of the due diligence exercise (subject to exclusivity period, if any) or the number and rounds of Q&As that may be submitted by the buyer.

In competitive bids, generally the seller selects the initial information and documents to be uploaded to the virtual data room and sets the rules of the due diligence activity - normally including a limitation regarding the number and frequency of queries – that usually must be completed in the short term to submit the relevant binding offer.

Typical legal due diligence investigation focuses on the following areas: corporate documentations and extraordinary transactions, authorisations and permits, commercial contracts, financial agreements, real estate, compliance, intellectual property and IT, employment and health and safety, IP, data protection, litigation and disputes.

Sometimes, environmental and/or other specific regulatory due diligence exercises are conducted if appropriate or necessary based on the circumstances or the nature of the target’s business. These aspects are acquiring relevance, especially taking into account their impact on ESG and cybersecurity (which are now also becoming subject matters of due diligence exercise).

Vendor due diligence (VDD) is quite common in the case of bid processes launched by private equity sellers, with the aim of speeding up the process and selecting in advance the information to be disclosed. Vendor due diligence reports typically provide a narrative legal description of the business, including an overview of consents required or other potential impediments to the transaction.

VDD reports are usually made available to bidders on a non-reliance basis. Sometimes, in the case of no-rep sales, reliance is given to the final bidder. Depending on how the bid is organised, the buy-side counsels may carry out a top-up/confirmatory due diligence on the specific issues detected by the vendor due diligence and on the additional areas or matters which have not been covered by the VDD exercise and/or are of particular interest to the purchaser.

Most PE transactions in Italy are carried out through private sale and purchase agreements between the seller and purchaser. Direct one-to-one negotiations on an exclusive basis are typical in small-sized transactions of businesses run by entrepreneurs and are normally preferred by investors as they grant more certainty in the transaction and are also generally more efficient in terms of human and financial resources invested in assessing the deal. However, when the seller is a PE firm, targets are sold by competitive bid procedures. Indeed, expensive, competitive procedures have many pros for sellers, including potentially maximising the value of the target.

While public auctions are mandatory by law only under specific circumstances (such as in the sale of a business branch during composition with creditors proceedings or judicial liquidation), private auctions are not subject to specific requirements or limitations and, therefore, give the seller substantial freedom to set up the auction process as desired. They also offer more freedom in terms of affording the possibility for the seller to suspend the auction at any time or to enter into exclusive negotiations with a sole bidder – taking into account, however, that a general duty of good faith always applies and must be carefully considered in handling the process in order to moderate any risk of pre-contractual liability.

Accordingly, the terms of the sale and purchase agreement may vary based on whether the sale is executed through a competitive process or a one-to-one negotiation, and also on the bargaining power of each party, which is usually expected to be stronger for the selling side in an auction sale than in a bilateral sale (although it also depends on the number of bidders and level of interest in the auction). Indeed, competitive processes typically allow the seller to obtain more seller-friendly terms and conditions, which include a high level of deal certainty (with conditions precedent limited to regulatory clearances) and general risk allocation (such as the limitations of the scope of the representations and warranties and related indemnities and the seller’s covenants and other undertakings). 

The structure of PE-backed buyers is generally set up based on tax and financing drivers, as well as ownership and governance needs. 

PE operators usually adopt ad hoc structures that may include a holding company (typically incorporated in a tax-friendly jurisdiction, such as Luxembourg) with one or more intermediate companies (mainly depending on the above-mentioned financing, tax, ownership and governance aspects). The acquiring/bidding entity is generally a newly incorporated Italian company in the form of a joint-stock company or a limited liability company (BidCo/NewCo) specifically incorporated to perform the acquisition and to take on the acquisition financing, if needed. In LBO transactions, BidCo/NewCo is merged with the target post-closing to push down the acquisition debt.

Usually, private equity buyers are not party to any transaction documentation except, if required, for the equity commitment letter, pursuant to which the fund commits to provide BidCo/NewCo with the necessary funds to pay the purchase price.

In general, Italian PE-backed buyers are formed as (i) closed-ended investment funds, (ii) open-ended investment funds structured in the form of a joint stock company (società per azioni) with variable capital, so-called "SICAV" (Società di Investimento a Capitale Variabile), and (iii) closed-ended investment funds established in the form of a joint stock company with fixed capital, so-called "SICAF" (Società di Investimento a Capitale Fisso), or in the form of simple investment companies, so-called "SIS” (Società di investimento semplice), when the exclusive object is the direct investment in start-up entities.

Private equity transactions in Italy are usually funded through a combination of equity injected by the PE fund and debt provided by banks and other financial institutions, with a level of leverage which varies based on several factors, including the size of the transaction, the conditions of the markets, the sector in which the target operates, the post-closing investor's business plan, as well as, in case of merger leveraged buyouts, the level of debt that the target can bear. The form of debt financing and the combination of its different forms also vary according to the type of transaction. Typical forms of third-party debt financing are senior bank loans or syndicated loans, while in large buyouts, transactions are often financed by a mixture of senior and mezzanine debt or senior debt and high-yield bonds. Financing can also include junior debt, which is commonly used to increase the amount of debt available, and is granted through second lien debt, mezzanine debt and payment-in-kind loan. The use of high-yield bond debt has decreased in the last 12-18 months due to high inflation and the general increase of interest rates.

Private equity sponsors sometimes are requested to deliver to the seller an equity commitment letter providing for sponsor’s commitment to provide NewCo/BidCo with the necessary funds to pay the relevant purchase price. Typical negotiation items are (i) the seller’s direct recourse against the sponsor to enforce the equity commitment and (ii) the possibility that the commitment covers not only the purchase price payment obligation but also BidCo/NewCo’s obligation to reimburse damages to the seller if in the case of a breach of its obligations, the seller decides to terminate the acquisition agreement as a consequence thereof.

If the transaction is not subject to financing and there is no debt commitment letter issued by debt providers, comfort in respect of the debt-funded portion of the purchase price is given to the seller through the equity commitment letter, which covers the entire purchase price under the acquisition agreement (ie, both the equity-funded and debt-funded portions of the purchase price). 

Although not common in Italy – in addition to investments (which are generally passive) made by limited partners and management team alongside the general partner/lead private equity sponsor – consortia and co-investments among PE houses or among PE houses and strategic investors or state-owned or state-sponsored investors are increasing, especially in relation to large transactions in the infrastructure sector. In this respect, minority investments and funds specifically dedicated to minority investments are also becoming more common. In any case, it is quite typical for private equity sponsors to reserve a right for future syndication, often involving single limited partners of the main fund. On the other hand, consortia comprised of PE funds and corporate/industrial operators are less frequent in the Italian PE market.

The two typical pricing mechanisms in any shares or assets acquisition are “locked-box” and “closing accounts”.

Traditionally, closing accounts methods have been the classic mechanism, while the use of locked-box structures has become more preferred in recent years.

The main difference between the two price mechanisms is the moment in which the economic risk and benefit in the target passes from the seller to the buyer: with closing accounts, this is at completion; with locked-box, this is at the so-called “locked-box date” which is agreed between the parties before signing.

Accordingly, each mechanism has pros and cons for both sides, and the actual benefit for private equity sponsors has to be assessed on a case-by-case basis. From an economic perspective, if the target’s business generates cash, locked box is favourable for the buyer as the cash generated from the locked-box date remains with them. In any case, locked-box requires a high degree of confidence with the outcome of the financial due diligence and works well with businesses with an acceptable level of managerial structure. 

Also earn-outs, deferred consideration or roll-over structures are quite common in private equity transactions. In particular, earn-out structures are being used in the last 12-18 months as they allow to close the gap between the buyer’s and seller’s evaluation of the business, making a portion of the price conditional upon the target reaching certain results post-closing.

A typical feature of the fixed price locked-box mechanism is the ticking fee (ie, an interest rate accruing on the price between signing and closing). In the recent past, the ticking fee was typically asked for by the seller if there was a long interim period between signing and closing due to regulatory clearances and/or the buyer’s other needs. In the last 12 months, the ticking fee has become more common in light of the general increase of interest rates.

It is very uncommon in M&A transactions in Italy to have interest on leakages which may occur in locked-box transactions. A strong buyer from a negotiation perspective may ask for that, but it would be considered an aggressive request.

Contractual documentation typically calls for a dedicated expert or other mechanism to solve potential disputes on post-closing adjustments (in the case of closing accounts) and/or leakages (in the case of locked-box). The parties mainly choose to identify a company of the Big Four to such extent. This provision does not differ according to the type of consideration structure used.

It is very common to have conditions to closing exceed the minimum level set by the mandatory and suspensory regulatory ones. Typically, the contractual documents could include conditions precedent concerning potential commercial issues arisen from the due diligence (eg, waiver to change of control clauses; fulfilment of certain pre-closing seller’s obligations, etc) or other uncertain events such as financing or the absence of material adverse changes. Clearly, the seller always tries to limit the number of conditions precedent to give certainty to the transaction, and if the conditions concern the fulfilment of the seller’s/third party's obligations, the seller tries to treat them as positive pre-closing/closing covenants/deliverables. In general, it is more common for entrepreneurs selling small-size businesses in bilateral deals to accept conditions precedent, while private equity sellers usually do not accept conditions, especially in the case of competitive bid processes.

“Hell or high water” provision requires that the buyer undertakes all actions and obligations necessary to satisfy governmental regulatory requirements for the acquisition to close. In Italy, such undertakings are generally uncommon as they pose a potential material burden on the buyer. However, it is quite typical in competitive bid processes that private equity sellers impose to private equity-backed buyers “hell or high water” undertakings for regulatory clearances (although with certain limitations usually concerning the exclusion of any obligation to dispose of strategic assets to fulfil the conditions).

Break fees are generally allowed under Italian law but they are not common in M&A transactions in Italy, especially if the deal involves a private equity-backed buyer. In small-sized transactions, sometimes break fees are used to protect sellers before signing, as damages deriving from pre-contractual breaches are difficult to quantify. Break fees between signing and closing are more easily accepted in auction-type transactions, with the aim of reinforcing the buyer’s commitment to close the transaction. Generally speaking, break fees would be expected to be in the range of 1% to 3% of the deal’s total value, but in practice, they are usually set to cover the costs and expenses incurred. In any case, it is advisable to set a reasonable and justifiable amount, as it could be re-determined by the judge in court if deemed manifestly excessive.

Time is crucial in private equity transactions where markets may change, rumours may attract the attention of competitors, etc. Transaction processes are, in fact, subject to a tight time schedule providing deadlines for all material milestones from the non-binding phase up to closing. When the acquisition is subject to conditions precedent/closing conditions, the contractual documents usually provide for a longstop date, which represents the latest moment by which both or either parties have interest in closing the transaction. If the longstop date is reached before the closing of the transaction, the contractual documents usually set forth the rules on how the agreement is terminated.

Termination could be automatic upon longstop date or could be activated by either party. Sometimes, the party having interest in the fulfilment of the conditions may keep the right to postpone the longstop date. Indeed, this solution offers greater decision-making freedom (especially with respect to unforeseeable events, such as the COVID-19 pandemic which, when not properly treated in the contractual documents, led to extension of deadlines) but it is not always easily accepted by the counterparty that is subject to the extension. Contractual documentation usually includes termination rights for both parties as general remedy in the case of a material breach of contract (in particular for failure - which must be material - by one party to fulfil its obligation under the contract), as well as automatic termination clauses (the clause by which the parties expressly agree that the contract shall be considered automatically terminated in the event that a specified obligation - even if not material - is not fulfilled in accordance with the terms set out in the contract itself). Usually, termination rights are available up to closing, as after closing the only available remedies are the indemnification rights for breach of representations and warranties. 

The typical overall allocation of risk in M&A transactions is mainly set by the strongest party from a negotiation standpoint and only partially depends on the circumstance that the seller or the buyer are private equity-backed or corporate. In general, private equity-backed buyers are more flexible than corporate buyers in terms of acceptable risks and are able to test innovative/atypical contractual solutions to address potential issues. On the contrary, private equity-backed sellers usually seek clear exits with no, or very few, representations and warranties and very limited post-closing potential liabilities.

Even in the Italian market, private equity-backed sellers are increasingly not granting warranties indemnities. Often, the management, through a document called the management warranty deed, which is separate from the sale and purchase agreement, grants representations and warranties insured with a W&I policy. The relevant limits (typically, de minimis, basket and cap, as well as time limits) are agreed with the insurer and reflected accordingly in the warranty management deed. This approach is almost always accepted when the buyer is private equity-backed, while industrial players may be more reluctant in accepting such an approach. In the case of W&I insurance, due diligence findings are a known risk and, therefore, not insured. If the buyer is willing for a guarantee on such issues, a specific indemnity by the seller is necessary. Sometimes, the seller agrees to cover specific and limited uninsurable risks and/or potential liabilities below the policy attachment point. 

In the context of M&A transactions, buyers usually request collateral to secure their indemnification rights. The most common instrument is the payment of a portion of the price into an escrow account. Sometimes, the investor requests a first demand bank guarantee from the seller; however, this is rare and it is not common to back the obligations of a private equity seller by means of this instrument.

In recent years, foreign insurance companies have started promoting the use of specific policies in the Italian M&A market for either the seller's or purchaser's benefit against the risk of a breach of fundamental and business representations and warranties (including on tax matters). These policies have become progressively more popular in fund-to-fund sales, where PE managers of the selling fund wish to distribute the sale proceeds as soon as possible, and any form of outstanding liability significantly affects their return.

Litigations involving private equity operators are not common in Italy. Potential disputes usually arise in relation to post-closing breaches of representations and warranties but they are mostly managed or solved out of court.

Another area of potential disputes is the price adjustment calculation and/or post-closing earn-out calculation which are usually solved through a third-party expert jointly appointed by the parties.

Public-to-private transactions are not common in Italy. Indeed, buyouts of listed companies are subject to several legal constraints, such as, inter alia, the regulatory provisions imposed by Legislative Decree No 58/1998 (Consolidated Law on Financial Intermediation, or TUF) and Issuers’ Regulation No 11971/99 issued by CONSOB (the Italian Competent Authority for supervision on securities market), aimed at protecting minority investors.

However, in the last few years, some PE funds (in particular, large buyout funds) have developed an increasing interest for listed entities, since: (i) the relevant market is less competitive than that of mid-capital privately held targets; (ii) there are several relatively small listed companies whose majority is still in the hands of the founders' families who are often interested in divesting their stake (generational handovers); and (iii) the stock exchange applies a lower value to listed entities (often negatively influenced by the overall national background) than that attributable by a PE fund by applying its usual investment criteria and parameters.

Public-to-private transactions have several particularities compared to ordinary transactions due to the listed status of the target; indeed, from the very beginning of the acquisition process, access to the target’s information, due diligence and disclosure duties are crucial items to be managed appropriately.   

Differently from other jurisdictions, relationship agreements between the bidder and target companies are not common.

Disclosure duties (towards the market and CONSOB) apply when a shareholding of voting rights in listed companies exceeds the thresholds of 3% (if the listed company is not a SME), 5%, 10%, 15%, 20%, 25%, 30%, 50%, 66.6% and 90% of total voting rights. Other disclosure requirements are foreseen with reference to aggregate shareholdings of voting rights underlying derivative financial instruments or any other long position. Private equity-backed bidders contemplating a tender offer in Italy give particular attention to the threshold of 30% (or 25% in companies other than SMEs in the absence of another shareholder holding a higher shareholding) as they trigger the obligation to launch a public tender offer addressed to all shareholders.

Public tender offers must be mandatorily launched upon the achievement of certain specific thresholds.

In particular, anyone who, as a result of purchases (including shareholdings purchased in the context of an M&A transaction) or the increase of voting rights, comes to hold a shareholding exceeding the threshold of 30% (or comes to hold more than 30% of those voting rights) of the voting share capital, must launch a public tender offer addressed to all the securities (a mandatory tender offer or MTO). In companies other than SMEs, this obligation is triggered with reference to the 25% threshold, lacking another shareholder holding a higher stake. The by-laws of SMEs may provide a different threshold, but not less than 25% or more than 40% (Article 106 TUF).

If, as a result of the MTO, the offeror comes to hold at least 95% of the share capital, it is obliged to purchase the remaining securities from those who so request (if several classes of securities are issued, the obligation exists only for those classes of securities for which the threshold of 95% has been reached). In any case, anyone who comes to hold more than 90% of the share capital is obliged to purchase the remaining securities from anyone who so requests if a sufficient free float is not restored to ensure the regular course of trading within 90 days. If more than one class of securities is issued, the obligation exists only with respect to those classes of securities for which the threshold of 90% has been reached (Article 108 TUF). In any case, upon achievement of the 95% threshold, the offeror has the right exercise the squeeze-out mechanism (see 7.7 Irrevocable Commitments).

In addition, an MTO must also be launched by any person who owns more than 30% of the voting share capital without, at the same time, exercising the majority (50% plus one) of voting rights at an ordinary shareholders’ meeting and purchases more than 5% of the voting share capital or increases its voting rights by more than 5% of the voting share capital during a 12-month period (ie, the creeper rule) (Article 106 TUF). 

The obligation to launch an MTO also applies to the so-called “persons acting in concert” when they come to hold an overall shareholding exceeding the above thresholds as a result of purchases made (even if the purchase is made by only one of them). The same obligations apply to such “persons acting in concert” (even in favour of only one of them) following an increase of their voting rights, when they come to hold voting rights exceeding the above percentages.

For the purposes of the MTO obligations, the following persons are always deemed to be “persons acting in concert”:

  • individuals/entities which are party to shareholders’ agreements aimed at stabilising the ownership structure or governance of the target;
  • an individual/entity, its parent company and its subsidiaries (eg, target shares held by affiliated or portfolio companies);
  • companies under common control; and,
  • a company and its directors, members of the supervisory board and/or general managers.

In takeovers in Italy, the bidder can either offer cash or securities, or a combination of both, although cash offers are more common in the Italian market.

In particular, both in mandatory and voluntary offers (in this latter case should relevant thresholds be exceeded) consideration may be represented by securities provided that (i) the securities offered in exchange are listed on a regulated market in an EU member state or (ii) a cash payment is offered as an alternative to the securities.

A voluntary takeover can be launched at a price that is freely determined by the bidder. However, if during the period between the filing of the decision to launch a takeover and the final date of payment of the consideration, the bidder (and/or persons acting in concert with the bidder) purchases, directly or indirectly, securities that are the object of the voluntary takeover at a price higher than the price of the voluntary takeover, the latter shall be increased up to the highest price that the bidder (or any person acting in concert with them) has paid (ie, best-price rule).

The price per share offered in the context of a mandatory takeover must be equal to the highest price paid by the bidder and/or persons acting in concert with them for any direct or indirect acquisition of the shares of the target during the 12 months preceding the publication of the decision to launch a takeover. If no purchase of shares of the same class was made in said period, the mandatory takeover shall be launched for that class of shares, at a price not lower than the weighted market average over the previous 12 months.

In light of the above, in public-to-private transactions, it is important to carefully assess whether in the overall investment arrangements and post-closing shareholders’ agreement there might be rights in favour of the existing shareholders partnering with the bidder (even post-closing governance/exit rights) that could be considered to have an economic value and, therefore, impacting on the price per share to be paid to all the shareholders under the MTO.

The launch of a voluntary takeover is irrevocable. The bidder, however, may state in the offer that the voluntary takeover is subject to certain conditions, provided that the occurrence (or non-occurrence) of said conditions does not depend exclusively on the “will” of the bidder. Therefore, conditions such as (i) the reaching of a minimum level of acceptances, (ii) the issue of an antitrust clearance, (iii) the lack of defensive measures and (iv) the absence of any fact that causes a material adverse change in the financial conditions of the target and/or of the group controlled by the target, have been considered valid and enforceable.

In a public-to-private transaction, a bidder may seek various deal security measures to protect their interests and facilitate a successful acquisition. Common deal security measures include break fees, match rights, force-the-vote provisions, and non-solicitation provisions. In particular, break fees provide the bidder with compensation if the deal falls through due to certain circumstances and force-the-vote provisions expedite the decision-making process by compelling the target company's shareholders to vote on the proposed transaction promptly.

Voluntary takeovers may be aimed at acquiring any percentage of any categories of securities. Therefore, the bidder may choose, at its own discretion, the quantity of securities over which the voluntary takeover is launched.

However, should the aim be to acquire more than 25% (or 30% in case of SMEs) of the voting share capital, the offer must be made for all the outstanding voting share capital or, subject to the conditions set out below, for at least 60% of said voting share capital (the partial public takeover offer, or partial PTO). Otherwise, the exceeding of the 25% (or 30% for SME) threshold post-partial PTO will require the bidder to subsequently launch a mandatory takeover for all the remaining voting shares (Article 107 TUF).

A mandatory takeover is not required to be launched where the relevant shares are acquired as a result of a public offer addressed to no less than 60% of the holders of the shares and all the following conditions are satisfied:

  • the bidder and the persons acting in concert with the bidder have not acquired shares exceeding 1% of the share capital of the target in the 12 months preceding the publication of the decision to launch a takeover or during the offer period;
  • the offer has been approved by the target’s shareholders holding the majority of the shares (excluding, for the purpose of calculating such majority, the shares held by the bidder; the shareholder holding an absolute or relative majority shareholding, provided that such shareholding exceeds 10%, and any persons acting in concert with the bidder); and
  • CONSOB grants a specific exemption, after having verified that the conditions set forth above are met.

According to market practice, private equity-backed bidders typically wait for the completion of the acquisition of the entire share capital of the target before executing the debt push-down into the target, in order to avoid the litigation risks which are typical of listed companies.

In general terms, however, reaching 66.6% of the voting share capital enables the offeror to adopt resolutions in extraordinary meetings (eg, mergers of the listed company in a non-listed company controlled by the offeror, following which, the delisting is obtained).

Following a successful offer launched on all the outstanding voting shares of the target as a result of which the bidder comes to hold a participation at least equal to 95% of the voting shares of the target, the bidder is entitled to exercise a squeeze-out mechanism and buy all the remaining shares.

It is common for the potential offeror, usually before launching a voluntary offer, to obtain the commitment of the principal shareholders to vote and/or tender their shareholding in the offer. Shareholders' agreements must be disclosed in the offer document and pursuant to Article 122 of TUF. Shareholders who intend to accept a public offer to buy or exchange made pursuant to Articles 106 or 107 may withdraw from the agreements referred to in Article 122 without notice. The declaration of withdrawal shall not produce effects if the transfer of the shares has not been finalised.

Equity incentivisation of the management team is a common feature of private equity transactions in Italy. The level of equity ownership may vary based on the size of the target company, as well as the number and background of the management team, but it is usually below 5-10% of the share capital.

The most common management incentives for the management of a portfolio company are:

  • variable compensation schemes based on the performance of either the portfolio company or the individual (bonus);
  • options to subscribe, for a fixed period, for portfolio company shares at a fixed price or on the basis of a certain formula; and
  • incentive schemes involving the assignment of equity or hybrid instruments issued by the holding or target company, whose return is accelerated upon exit compared to that of the PE investor, once the instruments held by the PE investor have reached a predetermined return.

Among the others, typical incentive mechanisms include (i) ratchet mechanisms (at exit, the PE investor transfers a portion of its extra profit to the managers upon the achievement of certain predetermined return thresholds (calculated in terms of the internal rate of return or MoM)); or (ii) sweet equity mechanisms (the PE investor receives equity or hybrid instruments granting a preferred capped return and all the extra profit is shared with the managers, who hold ordinary equity instruments with uncapped return).

Since 2017, with the introduction of the “carried interest” tax regime, incentive schemes – particularly for top management - started to be construed with the aim of matching the relevant tax regime requirements, pushing towards “ratchet”-like schemes rather than stock option plans.   

Management incentives are usually subject to vesting and leaver limitations which, in the case of equity instruments, are usually linked to put/call options. The implications of being a good leaver usually includes the manager’s dismissals without just cause and the manager’s resignations with just cause, whereas being a bad leaver includes the manager’s resignations without just cause and the manager’s dismissals with just cause. Cessation of the manager due to death or permanent disability could fall under both good or bad leavers depending on negotiations and the private equity house’s approach. However, it is quite common that those specific events have a different treatment by introducing a third category of leavers, named “sad” or “neutral” leavers. 

Management granted with equity participation is usually subject to non-compete and non-solicitation covenants contained both in the shareholders' agreement and in the employment/directorship agreement. Such limitations enforceable to this extent are (i) subject to reasonable time, territory and activities limitations, and (ii) duly remunerated. As far as employed managers are concerned, the non-compete covenants usually do not exceed one year post termination of the employment relationship and are remunerated with a portion of the gross remuneration of approximately 30-50%. Non-disparagement undertakings are often part of the post-termination set of obligations.

The management team with equity participation usually has no veto rights beside limited anti-dilution protections (eg, the option right on capital increases). The management team typically also does not have influence on the exit procedure which is driven by the private equity seller that has a drag-along right over the management’s stake. However, if the manager has a material equity participation (eg, if they are the founder of the target), they might enjoy stronger minority rights.

If a PE fund purchases a majority stake in the target company, in principle, it entirely controls the target's activities since it has the right to appoint the target's entire management team, in accordance with the quorum required under the Italian Civil Code (the majority of the votes at the shareholders’ meeting).

However, where other equity holders own a material minority participation, or where the PE fund only acquires a minority stake in the target company, the process of company governance is dictated by the shareholders' agreement and corporate documents, as detailed below.

In the shareholders' agreement, the PE fund is generally granted the right to:

  • appoint the majority (if it holds the majority of the corporate capital) or a number (if it holds the minority of the corporate capital) of the members of the board of directors, any relevant committees, and the auditing bodies of the target company,
  • appoint the managing director (if the PE fund holds the majority of the corporate capital it is generally granted this right); and
  • veto at shareholders’ meetings and at the board of directors’ level on certain material matters (eg, on the change of the CEO, on amendments to the business plan, on financing matters, on extraordinary transactions and on dilutive transactions).

In the company's governing documents, the PE fund is usually given control over the target's management through the following measures:

  • the provisions of the shareholders' agreements are mirrored in the company's by-laws; and
  • the target company managers are given specific and detailed management powers (reflected in the resolution approving their appointment) and undertake specific and detailed information and reporting duties (established in their individual management agreements).

Additionally, an investor with a majority shareholding has enough votes in a shareholders' meeting to revoke directors' appointment for any reason (though the director retains the right to indemnification in the case of revocation without cause). However, this can be modified by a further right given to the minority shareholders in the shareholders' agreement or a qualified majority set out by the company by-laws.

As a general principle, shareholders are not liable for the relevant company’s activity/debt. Actually, shareholders’ liability should be limited to the company’s capital. However, pursuant to the Italian Civil Code, parent companies that, exercising direction and coordination activities on subsidiaries in violation of the principles of proper corporate and entrepreneurial management, are directly liable to the (other) shareholders and the subsidiary's creditors for losses caused to the value of the subsidiary. Based on certain (minority) case law, the above liability regime may also apply to private equity investors and, in particular, to the general partners (in Italian the società di gestione del risparmio) managing a private equity fund.

In addition, shareholders of limited liability companies (società a responsabilità limitata) are jointly liable, along with the company, for actions carried out pursuant to the shareholders’ authorisations and/or intentional decisions. 

The most common exit procedures for private equity shareholders in the Italian M&A market are private sales/competitive processes led by a financial advisor. Sometimes, IPO processes are launched but these are definitely less common. Dual-track (ie, an IPO and sale process running concurrently) exit processes are also contemplated by private equity investors in the Italian market, but are less common. Triple-track (ie, an IPO, sale process and a recapitalisation are running concurrently) exit processes are very unusual.

In certain cases, typically in large deals and/or when there is still a gap in the evaluation of the target, private equity sellers may roll over a part of their proceeds along with the new private equity buyer.

In equity arrangements, drag and tag-along rights are typically used and included in the shareholders' agreement and/or in the by-laws of the target company. Namely, the drag-along right enables a majority shareholder (holding more than 50% of the share capital) to force a minority shareholder (holding less than 50% of the share capital) to join in the sale of all the company’s shares, while the tag-along right enables certain shareholders (usually minority shareholders) to force other shareholders (usually the majority shareholders) who wish to sell their shares to also procure the sale of the minority shares with the same terms and conditions.

Ordinary drags and tags usually apply to 100% of the shares to be sold (ie, drag can be exercised only if the sale concerns 100% of the company’s share capital and tag can be exercised only with respect to 100% of the shares held by the tagging shareholder). However, drags and tags could also be proportional (ie, the dragging shareholder can drag - and the tagging shareholder can tag - a number of shares proportional to those that are transferred). Sometimes, total and proportional drags and tags are both contemplated and the holder of the relevant right can opt to exercise it totally or proportionally.   

It is quite common that private equity investors get a drag-along right even if they hold a minority of shares. However, in practice, the above provisions are rarely used or enforced, as sales are more frequently carried out by all the shareholders in agreement.

On an exit by way of an IPO, typical lock-up arrangements on the Italian market range between three and twelve months, hence, for such a period, private equity sellers are restricted from selling their shares.

In particular, the issuers' shareholders (which might also include private equity sellers) commit to the underwriters of the IPO that, for a specified period from the first trading date of the shares on the listed market and without the prior written consent of the banks, they will not (i) directly or indirectly offer, pledge, sell, contract to sell, grant any option, right, warrant, or contract to purchase, exercise any option to sell, purchase any option or contract to sell, lend or otherwise transfer or dispose of their shares; or (ii) enter into any swap or any other agreement or transaction that transfers, in whole or in part, directly or indirectly, the economic consequences of ownership of any shares

Private equity sellers and the issuers are not usually bound by relationship agreements, considering that it is usually considered a market standard that the issuers do not have any particular relationship with their major shareholders, which might not be considered favourably by the market; indeed, such agreements may be seen as potentially favouring certain shareholders over others or raising concerns about related-party transactions. 

In addition to the typical lock-up arrangements and the absence of relationship agreements, there are several other particularities that can be highlighted in respect of PE-led IPOs.

  • Dilution and exit strategy: private equity firms often seek to exit their investments through IPOs as part of their exit strategy. However, this process may result in dilution of their ownership stake, especially if the IPO involves issuing additional shares to the public.
  • Governance: private equity firms may have appointed their representatives to the company's board during their ownership period. As the company goes public, the governance structure may need to adapt to accommodate independent directors and meet the listing requirements of the listed markets.
  • Use of IPO proceeds: private equity firms must be transparent about their plans for utilising the funds raised, such as for expansion, debt reduction, or acquisitions.
  • Regulatory compliance: as a public company, it is subject to more extensive regulatory requirements and reporting obligations. Private equity-backed companies need to ensure that they have robust systems in place to comply with these new obligations.
Gianni & Origoni

Via delle Quattro Fontane 20

+39 06 478751

+39 06 4871101
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Trends and Developments


Gianni & Origoni is an award-winning business law firm providing legal advice in all areas of commercial law. Established in 1988, our firm now comprises over 430 highly specialised lawyers based in Italy and abroad in key business hubs such as New York, London, Brussels, Abu Dhabi, Shanghai and Hong Kong. Alongside this, our network of long-standing relationships with leading law firms around the world enables us to fully assist our clients on any kind of cross-border transactions. In particular, an integrated, cross-disciplinary team of over 50 lawyers (M&A, Debt, Tax and Labour) assists Italian and foreign private equity funds in large and mid-cap acquisitions or exit transactions. The firm started assisting Italian private equity pioneers, such as Kiwi and 21 Investimenti, in the early 90s and successfully continued our leading role in the private equity market, becoming the reference legal counsel of several top players (Ardian, Blackstone, Cinven, KKR, Apax Partners, Antin, Apheon, etc).

General Overview

After a very busy 2022, the Italian M&A market faced a significant slowdown for the first part of 2023, with a material decrease in terms of deal value and deal volume compared to the previous year. This has primarily been the result of the current uncertainties in the market deriving from the ongoing geopolitical crises, in particular, the conflict in Ukraine and the trade war between the United States and China, as well as the high cost of financing due to the interest rates increased by central banks worldwide in an attempt to tackle the current inflation. Also, the ongoing issues severely affecting the supply chain worldwide have been putting enormous pressure on the operations of companies and their ability to produce cash, which also generally contributed to cool off the appetite for M&A.

In light of the macro-level uncertainties, fundraising in private equity has also experienced some setback, with a number of funds deferred to the next year.

This decline in M&A activity, which is being felt in Italy and across Europe, has also been impacting the Italian private equity market, which has seen lower levels compared to what was expected. However, in this context, while the skyrocketing of the interest rates and the cost of financing has certainly slowed down the mega-deal market, making the large-cap sponsored deals tough to finance, the mid-market private equity segment has remained quite dynamic and busy in Italy, being less dependent on external financing sources.

The continuous growth for smaller deals can also be seen in the number of add-ons by PE sponsored companies, which are deals that can be financed from the balance sheet of a portfolio company. These add-ons have also been used coherently with the buy-and-build strategies of PE funds, where purchasing smaller companies can occur at lower multiples to build them into a larger conglomerate to be later sold at a higher valuation.

In this context, fund managers are working closely with portfolio company management teams to grow the business and improve profitability and working capital cycles, in light of the upcoming sale process which would take place when market conditions appear more favourable.

Sectors and Trends

The most active sectors in the private equity industry include technology, business services, healthcare, and infrastructure. In particular, the technology sector has proved to be particularly resilient in the information and communication technologies space and software segments, with an important role played by AI and cybersecurity.

Infrastructure and transport sectors have also seen a lot of dynamism with a landmark transaction in 2022 consisting of the acquisition of Atlantia by Blackstone and the Benetton family, with a deal amounting to roughly EUR43 billion. The infrastructure and telecommunication sector could also witness a major M&A deal this year, with the potential sale of Telecom Italia’s landline grid to investors such as KKR, CDP and/or Macquarie.

Retail, consumer, food and fashion proved to be less attractive, although the authors can easily predict a shift in the near future, with a return of investors in the more traditional “Made in Italy” sectors.

In all these fields, what the authors have seen as a common element in the current trend is the increased focus by PE players on sustainability and environmental, social, and governance (ESG) considerations, which have gained prominence.

Fund managers of private equity firms in Italy are now measuring ESG risk factors and policies in their due diligence and operations, and often retain dedicated ESG advisory firms as part of their due diligence team whenever they are engaging in potential acquisitions. ESG screening is becoming a critical tool for value creation and mitigation against risks such as health and safety breaches and/or fraudulent governance practices. In this manner, the PE firms are also improving their brand recognition, knowing that many institutional investors such as pension funds and the like are prioritising ESG factors and excluding investment in controversial industries and/or businesses which are not compliant with the main ESG indicators.

Golden Powers and Foreign Subsidies

Another challenge that is impacting private equity transactions in Italy is the increased level of protectionism, which has resulted in a tighter and stricter regulation of foreign investment or investment in critical sectors (the so-called “Golden Powers” regulation). Over the years, the scope of application of the Golden Powers regulation has been progressively extended, with the ultimate goal of the Italian government to exercise its scrutiny and control on M&A transactions in a number of different sectors (which now includes not only the most traditional sectors of defence and national security, but also transportation, telecommunications, energy, gas, IT, cybersecurity and others that are considered essential for the maintenance of the vital functions of health, security, economy and welfare of the population).

In a situation where a transaction falls (or potentially falls) within the parameter of the Golden Powers regulation, the parties will have to first notify the proposed transaction and wait for the obtainment of the clearance of the Italian government before the closing can take place. The Italian government has 45 days to either approve or deny the transaction or impose conditions to the completion of the transaction (although such terms can be suspended under certain circumstances).

The parameters of the Golden Powers regulations are, in certain sections, drafted in a rather broad manner and it is not always easy to clearly define in advance whether a transaction should be notified. Given the uncertainty and the grey area of the legislation (and the severity of the sanctions in the case of a violation of notification duties), the parties frequently end up notifying proposed transactions to the Italian government even when this is not strictly necessary.

Recently, considering the significant increase of the number of transactions being notified to the Italian government for precautionary purposes, said government has introduced the possibility to carry out a pre-notification (before the execution of binding agreements), thus allowing a preliminary assessment by the Italian government as to whether the potential transaction would be subject to its scrutiny.

Only rarely has the Italian government exercised its blocking powers, and more recently, in March 2023, when the Italian government exercised its recently amended Golden Powers to block Nebius, a Dutch-based cloud services provider company, from acquiring local competitor Tecnologia Intelligente, due to concerns relating to the buyer’s funding ties to Russian search engine business Yandex. Apart from these sporadic cases, overall the strengthening of this legislation does not appear to have affected activity levels; however, in terms of deal execution, the drafting of the share purchase agreement has to take into account the effects of the Golden Powers regulations, especially with respect to the clauses on the closing conditions and the interim covenants, and potentially the allocation of risks deriving from possible (even if not likely) conditions imposed to the closing of the transaction by the Italian government. 

Another challenge on the watchlists of larger sponsors is the upcoming Foreign Subsidies Regulation (FSR), which will introduce new approval requirements in the last quarter of 2023 for a significant number of large M&A deals, particularly those involving PE firms and other financial investors.

The FSR will allow the European Commission to identify subsidies granted by non-EU countries which could impact the internal market and establish conditions to protect competition; this legislation would fill in a regulatory gap, where subsidies granted by EU member states to EU companies were closely reviewed by the European Commission under state aid rules, while subsidies from non-EU countries were not scrutinised.

The FSR would come into play if certain monetary thresholds are exceeded, and PE will have to take this into account when looking at potential targets in the EU and in Italy, navigating the underlying regulatory complexities.

There are special rules for PE funds. Whereas the general rule is that financial contributions should be aggregated at the group level, for PE funds, financial contributions may be assessed at the level of the single fund when (i) the fund which controls the acquiring entity is subject to Directive 2011/61/EU of 8 June 2011 on Alternative Investment Fund Managers or alternative third country pieces of legislation and (ii) the economic and commercial transactions between the fund which controls the acquiring entity and other investment funds (and the companies controlled by these funds) managed by the same investment company are non-existent or limited.

Purchase Price Mechanism

In a market characterised by uncertainty, valuations of target companies may fall while the expectations of the sellers in terms of prices remain high, so it not always easy (even for willing sellers and buyers) to find the right balance and compromise. What has been seen more frequently in similar circumstances, as a way to bridge the valuation gap between seller and purchaser, is the recourse to earn-out arrangements. In more detail, the PE buyer is willing to pay the seller an increase of the purchase price contingent on the achievement of certain future results of the target company (in terms of turnover, EBITDA, margins, etc). This happens more frequently when the seller retains a minority stake in the target company supporting, after the acquisition, the future growth of the target company.

When defining the economics of a deal with a PE (buyer), an earn-out arrangement is generally a matter for discussion, along with the other adjustment mechanism of the purchase price. It is indeed quite rare to see in these deals a “fix” price, while it is more common to see either locked-box consideration mechanisms or purchase price adjustment based on net financial debt and/or net working capital at closing. Sellers generally prefer the locked-box mechanism which offers them better protection and a greater level of certainty regarding the final price.


Successful exits are a critical part of private equity investing. Italian private equity firms have been working on various exit strategies, traditionally including IPOs, trade sales, and secondary buyouts, to realise returns on their investments.

In periods of uncertainty, exit activity may, however, prove to be rather challenging when there is limited appetite from corporate acquirers and a general slowdown in the IPO market.

With public market valuations falling and increasing inflation, the IPO could be a less secure route, with PE firms pursuing an exit through a more predictable M&A. This is also becoming evident when assisting PE in negotiating shareholders’ agreement with minority investors (such as the founders and/or the key managers of the target company); indeed, in shareholders’ agreement, PE firms want to clearly retain full control and guidance on the exit strategy, with the right to unilaterally exercise drag-along right and/or to force the sale of 100% of the company with competitive process; on the other hand, there is more flexibility from PE firms on IPO clauses where they seem to accept that the IPO has to be decided jointly between the PE firm and the other shareholders.

Dual-track exits (with a sale and an IPO process going in parallel) are less popular, especially given the costs associated with it.

Drag-along rights are common in shareholders’ agreements in private equity transactions and can be deemed enforceable in Italy, if structured in compliance with the requirements provided by Italian law (including the guarantee of an exit purchase price at least equal to the fair market value). Although drag-along rights are heavily negotiated in the shareholders’ agreement, in practice, at exit these rights are rarely exercised and enforced before courts. As a matter of fact, PE mostly relies on the cooperation and collaboration of the other shareholders, which typically follows the sale if the PE firms can show that the sale was preceded by a competitive process aimed at the maximisation of the value of the exit of all shareholders. 

To align the interest between the target company management team and the private equity fund shareholder (whether majority or minority), typically managers/founders who reinvest in the target companies are assigned the right to receive, under certain conditions, an enhanced return, if the exit ensures to the PE a cash-on-cash return above the target level. There is some level of complexity in defining the structure of these management equity incentive schemes, which is often also tax driven. 

Another area of great attention in the exit scenario would be the allocation of risk related to warranties and indemnities. Private equity funds are reluctant to assume risk of potential liabilities on exit, and we have seen a significant recourse, especially in the last years, to warranty and indemnity (W&I) insurance, to ensure a “clean exit”. Typically, these W&I insurances are issued by the insurance policies against the representations and warranties rendered not by the PE selling but rather by the key managers of the target company, who often request to retain their own legal counsel to review and negotiate the contracts at the time of the exit. 

In a situation where the private equity are the buyers, W&I insurance can also be seen as a valid tool to afford a greater level of protection to them if the coverage offered by sellers is not deemed sufficient.

Gianni & Origoni

Via delle Quattro Fontane 20

+39 06 478751

+39 06 4871101
Author Business Card

Law and Practice


Gianni & Origoni is an award-winning business law firm providing legal advice in all areas of commercial law. Established in 1988, our firm now comprises over 430 highly specialised lawyers based in Italy and abroad in key business hubs such as New York, London, Brussels, Abu Dhabi, Shanghai and Hong Kong. Alongside this, our network of long-standing relationships with leading law firms around the world enables us to fully assist our clients on any kind of cross-border transactions. In particular, an integrated, cross-disciplinary team of over 50 lawyers (M&A, Debt, Tax and Labour) assists Italian and foreign private equity funds in large and mid-cap acquisitions or exit transactions. The firm started assisting Italian private equity pioneers, such as Kiwi and 21 Investimenti, in the early 90s and successfully continued our leading role in the private equity market, becoming the reference legal counsel of several top players (Ardian, Blackstone, Cinven, KKR, Apax Partners, Antin, Apheon, etc).

Trends and Development


Gianni & Origoni is an award-winning business law firm providing legal advice in all areas of commercial law. Established in 1988, our firm now comprises over 430 highly specialised lawyers based in Italy and abroad in key business hubs such as New York, London, Brussels, Abu Dhabi, Shanghai and Hong Kong. Alongside this, our network of long-standing relationships with leading law firms around the world enables us to fully assist our clients on any kind of cross-border transactions. In particular, an integrated, cross-disciplinary team of over 50 lawyers (M&A, Debt, Tax and Labour) assists Italian and foreign private equity funds in large and mid-cap acquisitions or exit transactions. The firm started assisting Italian private equity pioneers, such as Kiwi and 21 Investimenti, in the early 90s and successfully continued our leading role in the private equity market, becoming the reference legal counsel of several top players (Ardian, Blackstone, Cinven, KKR, Apax Partners, Antin, Apheon, etc).

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