Introduction and Overview

In summary, 2024 was a pivotal year for Italy’s private equity sector, characterised by substantial growth and increased international engagement, setting a positive trajectory for future developments.

Private equity firms were and are actively seeking to invest in Italian companies, often targeting mid-sized firms with growth potential. In general, the entire Italian M&A market is very dynamic and still expanding, both in the context of medium-sized and larger operations. Noticeably, there was an upward trend in cross-border transactions. For example, Swisscom’s acquisition of Vodafone’s Italian operations for EUR8 billion underlined the robust activity in the telecommunications sector and, more generally, the attractiveness of the Italian market for foreign investors.

All these factors contributed to and are expected to continue contributing to the dynamism of private equity in Italy.

Looking at key data, in 2024, PE funds made approximately 240 acquisitions of Italian targets (+14%). This is a steadily increasing trend, considering that since 2020, there has been growth of approximately 100% and 170% compared to 2014.

Following such an active 2024 for PE deals (and M&A in general), 2025 will likely see a further increase in M&A dynamism in Italy, fueled by favourable market conditions, abundant capital, and strategic corporate initiatives in key growth sectors. Italy is projected to experience a robust PE market in 2025, potentially outpacing other European countries. Several key factors drive this positive outlook.

Recent Trends

Recent trends in mergers and acquisitions (M&A) – often driven by the investment choices taken by PE investors – include:

• a growing focus on technology-driven companies, especially in fintech, e-commerce, and software solutions;
• greater courage in building up transactions structured through the acquisition (add-on) of companies based also outside the national territory, leading to more cross-border M&A deals, particularly with European and North American companies; and
• consolidation in traditional industries like manufacturing, retail, and food and beverage as companies aim to enhance efficiency and increase market share.

The sectors of Italian targets in which Private Equity funds invested the most in 2024 are software development (approximately 12% of the PE deals), industrial equipment and machinery (approximately 6%), automotive components, business support services (approximately 3% each), clothes, medical equipment and services, agri-processing/cereals, and construction services (approximately 2.5% each).

These trends are also the main areas of interest for future and upcoming M&A and PE transactions.

Future Areas of Focus and Key New Business Opportunities in the Italian PE Market

One of the key areas of interest in the Italian private equity (PE) market is digital transformation. As companies ramp up their digital initiatives, the demand for technology firms, especially those specialising in artificial intelligence, cybersecurity, and digital marketing solutions, is expected to grow. In this context, mergers and acquisitions, fueled by the available funds from PE investors, are anticipated to be a strategic means for traditional companies to acquire technological capabilities.

Furthermore, PE investors will likely focus on industries prioritising sustainability practices and technologies. They will seek acquisitions that enhance R&D capabilities, expand product portfolios, and strengthen resilient supply chains, particularly in the manufacturing and logistics sectors. Investors are anticipated to be particularly aggressive in sectors like technology and green energy. These areas are set to experience rapid growth, and M&A activity is expected to be driven by the need for consolidation, innovation, or strategic repositioning.

Additionally, PEs must pay attention to two factors that seem to portray the near future.

M&A

Italy still has a significant number of family-owned companies that have just entered or are just now entering the phase of succession. There will, therefore, be material opportunities for mergers and acquisitions as owners seek to sell to larger companies or private equity groups to ensure continuity and growth. In Italy, it is common for a family-owned company to seek support from PE investors to reorganise the company’s governance and attract key managers outside of the family members.

Italian companies are also more likely to aggressively pursue M&A to expand globally or innovate in response to changing market demands, and PE investors are increasingly considered a better way to support growth than third-party indebtedness.

In this context, domestic firms will increasingly compete with international players, resulting in a more competitive environment for acquisitions.

Consolidation

The financial services sector is expected to undergo further consolidation. Banks and financial institutions may seek to merge or acquire fintech companies to enhance their digital offerings and compete with emerging market players. This consolidation is also envisaged to impact the M&A/PE market.

Keeping up with the trends

In general, the Italian market, especially compared to that of countries that have traditionally been more stable but are now undergoing political and economic changes, is optimistic based on 2024 results and in view of 2025 beginning.

As confidence in the economy grows, the market expects to see larger and more numerous deals emerge, reflecting a willingness among companies to invest significantly in growth opportunities.

PEs that effectively navigate these trends will likely position themselves for long-term success in the evolving market. Secondary buyouts and carve-outs are also likely to gain prominence as PE firms seek to maximise value creation in this dynamic market environment: transactions meant to optimise PEs’ portfolios and reallocate resources to core business areas are deemed likely to accelerate.

New Attractiveness for Foreign Investors and Impact on the Italian PE Market

As mentioned, the M&A landscape in Italy appears to be dynamic, driven by technological advancements, sustainability and resilience, as well as growth. Moreover, while other European countries typically considered more stable than Italy, both politically and economically, are experiencing a delicate period of uncertainty and major political and socio-economic changes, Italy is enjoying a period of stability that makes it much more attractive to foreign investments.

Italy is home to many undervalued businesses and has yet to fully realise its potential. In the past, foreign investors hesitated to invest in Italy due to concerns over political instability, complex taxation, and a slow justice system. However, in recent times, many of these obstacles appear to have been largely mitigated, if not completely resolved, making Italy a more attractive destination for investment. Additionally, it’s important to note that other EU countries no longer seem to be clearly safer havens for investments. As a result, Italy is now better positioned than in the past to attract both domestic and international investors.

In this respect, moreover, the Italian government has recently stated to be willing – and to be in the process of assessing how – to change the so-called Golden Power rules (ie, the Italian FDI rules) that allow it to intervene in mergers and acquisitions and, in case deemed necessary, to stop them. Conceived at the European level to fend off unwanted non-EU buyers, the Golden Power rules had been deeply expanded during the COVID-19 pandemic to protect companies deemed strategic in the event of a rating collapse.

In essence, tightening the Golden Power rules has mostly resulted in a disproportionate increase in notifications rather than a more incisive use of government powers. On the other hand, the country was perceived as more closed and less friendly to foreign investments.

Should these rules be softened, this would give an important message to foreign investors about Italy’s desire to open its market.

A favourable regulatory environment, combined with the quality of Italian companies, is likely to drive increased deal and exit activity in the country in the next few years.

Private equity firms, including a growing presence of international players such as US investors, are anticipated to become more active in Italy. These firms have accumulated significant capital reserves, commonly referred to as “dry powder.” This accumulation is expected to drive increased deal-making and exit activity in 2025 as these firms aim to deploy their capital and realise returns on their investments.

If the list of investment-friendly countries appears to be reduced (due to the new political instability that has affected some of the countries that were always considered solid), and Italy is on the list of the few “good places to invest”, then a lot of resources will be concentrated in Italy.

In other words, with abundant capital (dry powder) available, Italy, with its strategic positioning and robust sectors (eg, technology, green energy, luxury goods), is likely to attract aggressive investors seeking both growth opportunities and exits, especially in industries poised for transformation, like energy transition or digital innovation. In a nutshell, Italy is therefore expected to be an increasingly attractive market.

In light of all the above, new scenarios should open up for the entire PE market in Italy: new players are expected to enter the market, competing with investors already operating in it who, in the past, have enjoyed and been able to benefit from less competition.

Impact from across the pond

Finally, the outcome of the 2024 US presidential election deserves at least a note: first of all, the new US administration is expected to adopt a more relaxed approach to M&A enforcement by federal antitrust agencies, but the Committee on Foreign Investment in the United States is likely to remain a significant hurdle for companies from certain countries looking to invest in the United States.

That said, the outcome of the US election affects Italy’s M&A landscape only indirectly. The anticipated increase in global M&A activity, driven by favourable economic conditions and regulatory changes, is expected to positively impact the Italian market due to an increase in interest from US investors. Additionally, Italian firms, supported and encouraged by their PE shareholders and partners, may look to expand into the US market, leveraging the more favourable regulatory environment.

Investors' Advantages and Market Advantages

Poised to take advantage of the dynamic M&A landscape in Italy, investors should try various strategic approaches to tap into the burgeoning Italian market and enhance their portfolios, benefiting from acquiring companies with strong market positions and possibly triggering synergies to enhance profitability.

Domestic firms competing with international players should result in a more competitive, complex, and mature environment for acquisitions. In turn, this should reasonably result in a general improvement of bids in favour of vendors, making them increasingly competitive and attractive. The structure of the transactions as proposed to sellers should also improve because competition between several PE operators should induce them to seek, study, assess, and then propose innovative, more efficient solutions, all so that their proposal is more attractive than that of others.

A more sophisticated PE environment, with more PE investors competing in a common field, should improve market research and analysis to pinpoint promising targets, especially in high-growth sectors, revealing more targets than originally thought to exist.

More generally (and simply), also potential sellers should be induced to increase and develop their awareness of the market and its opportunities, resulting from being more enticed to organise competitive sales procedures instead of being willing to be approached by an individual investor, perhaps local, and to enter immediately into a one-on-one negotiation (as is still often the case for small/mid-cap deals). In turn, this overall improvement of the market and its players should also trigger the improvement of the quality of the advisors involved on both sides. In other words, the Italian PE market is expected to become more sophisticated.

With particular reference to the identified targets, the due diligence processes to assess the financial health, operational efficiencies and growth potential of such companies, conducted with the meticulous approach taken by PEs, will – regardless of the outcome of the transaction – help such potential targets to mitigate their embedded risks and become more sophisticated.

In this respect, it is worth noting that Italian companies will be more and more pushed to improve Environmental, Social, and Governance (ESG) compliance, brand reputation and appeal to socially conscious consumers because PE investors are increasingly likely to seek to acquire companies that align with sustainable practices.