Over the last 12 months, PE investors on the Italian market adopted a cautious but strategic approach. A reduced number of large-scale buyouts was accompanied by a certain activism driven by specific transaction types and sectors.

The market has seen an increase in bolt-on acquisitions by PE portfolio companies which acquired smaller complementary businesses with a view to consolidating market share, achieving synergies and creating value in a manner that allows for higher risk differentiation compared to large, standalone transactions in an uncertain macro-economic environment.

There has also been an increase in “P2P” transactions where listed companies with depressed valuations become attractive targets for PE sponsors.

“Club deals” and co-investments, especially in larger transactions, have also become common, with PE sponsors and other financial investors joining forces to share equity ticket and associated risks.

In general, the market proved to be more selective and price-sensitive, still with a strong appetite for high-quality assets with growth potential and sufficient financial resources to pursue them.

Several sectors were active in the Italian PE market in 2025. This is mostly because they proved resilient or demonstrate potential to grow despite complex global conjuncture. The technology and digital sectors, especially software-as-a-service (SaaS) and cybersecurity, still draw sponsors’ focus. The healthcare sector, which includes medical devices, diagnostics and care for the elderly, is still favoured because of demographic trends and the growing need for specialised services. Investors are also looking at the consumer goods sector, especially for high-end brands and “Made in Italy” products, because they see competitive advantages in the country’s strong brand reputation.

A mix of macro-economic and geopolitical factors has had a big effect during the past twelve months. The high-interest rate has been the most severe problem. Debt is getting more expensive, which led leveraged buyouts (LBOs) to become expensive as well. This has caused assets to be priced differently and made equity more important in financing structures. This has put pressure on valuations because funds have to be more careful with how they bid. Global critical factors, such as wars in some areas and issues with the supply chain, have also added a level of uncertainty to the market. This has made investors do more thorough due diligence, paying close attention to a target’s ability to bounce back, its supply chain weaknesses, and its exposure to geopolitical risks. On the other hand, these factors have also opened up chances for PE to invest in businesses that can benefit from strategic reshoring, the transition to cleaner energy, or the government spending more on defence and important infrastructure.

There have not been a lot of major modifications to the law in Italy that directly affect PE in the past year, yet adjustments to existing laws have had significant impacts.

The most important evolution has been the “Golden Power” regime and its application as it has grown and become more assertive over time. It was originally meant to protect strategic assets in areas like defence and energy, but its scope has grown over time to include other important areas such as telecommunications, healthcare and finance. When a PE investor or deal involves a company in a sensitive industry, they are now subject to heightened scrutiny. The regime now covers more types of transactions, such as buying minority stakes and making certain corporate transactions, beyond mere changes of control.

This has a significant impact on making deals. For PE investors, this means that deals involving Italian strategic assets are no longer just about price and business terms. They now have to go through a regulatory approval process that could take a long time and be hard to predict, which could cause significant delays and uncertainty. The Italian government may impose conditions on the deal or, in the worst cases (although rare), block it in whole. As a result of this, Golden Power risk assessment is now an important component of legal due diligence, and deal documentation frequently includes specific golden power conditions precedent.

The main – and more frequently involved – regulators on Italian PE transactions are the Italian Competition Authority (AGCM), which is in charge of merger control, and the Presidency of the Council of Ministers, which is in charge of the “Golden Power” regime. AGCM is responsible for clearing deals with an overall value exceeding certain turnover thresholds to prevent anti-competitive concentrations. This affects both corporate buyers and PE-backed investors. The Golden Power regime is particularly critical to PE because it gives the government the power block or set conditions on investments in strategic businesses. This regime is very broad and applies to investors backed by PE, especially those with ultimate beneficial owners who are not in the EU. Regulators showed a different approach in the way they view financial investors (often prompting inquiries in complex investment structures) and special care is given to sovereign wealth funds, which due to the geopolitical interests surrounding them are perceived as deserving more attention. The Golden Power regime keeps evolving, and the government is taking a more proactive role. The list of strategic sectors has also grown.

The EU Foreign Subsidies Regulation (FSR) is also very important for transactions in Italy as it applies to all companies operating in the EU. The FSR provides that PE backed buyers must notify the EU about any deals where the acquired company exceeds a certain turnover threshold in the EU and foreign subsidies have been endowed beyond a certain amount.

In the last year, the implementation of new EU directives and a growing focus on sustainability in the market have required PE funds to undergo more thorough ESG due diligence and demonstrate clear ESG strategies, with more emphasis on reporting and transparency.

If the PE fund’s target is an Italian listed entity with securities trading on the Italian stock exchange, CONSOB (the Italian financial markets regulator) is also involved and supervises that the take-private transaction complies with European rules on transparency and best pricing, as well as MAR (market abuse regulation).

In Italian PE transactions, the scope of legal due diligence (DD) is usually extensive and heavily focused on risk identification and mitigation. The buyer typically appoints its legal counsel to handle this process, which frequently involves a multidisciplinary team of tax, financial and technical advisers.

The target company’s size and complexity will determine the legal DD’s scope, but it usually entails a thorough examination of all key legal areas, such as:

• corporate and governance;
• material contracts;
• employment matters;
• real estate and environmental matters;
• litigation and regulatory compliance;
• intellectual property; and
• golden power.

The DD’s output is usually a red-flag legal report that highlights key risks, summarises findings and suggests risk-mitigation tactics like particular indemnities or price adjustments.

In Italy, sellers in PE transactions frequently provide for a vendor due diligence report (VDD) covering the same topics as a buyer’s DD, especially in an auction sale process. The VDD’s goals are to expedite the sales process, give prospective purchasers a uniform set of information, and enable the seller proactively to handle possible issues before bidders bring them up.

Alternatively, a “legal fact-book” is frequently supplied. This is a high-level summary of the target’s legal matters and, unlike a buyer’s legal due diligence report, it generally provides for an objective representation of what is being examined, without emphasising critical issues or proposing solutions. Sellers’ advisers usually do not provide reliance on the VDD reports to all prospective bidders.

More recently, the winning bidder and their financing banks are requiring the potential to rely on the VDD report. This is intended to give the buyer contractual comfort and to facilitate their own financing and due diligence process.

More often, VDD is used as a disclosure against the warranties.

In Italy, PE funds use private treaty sale and purchase agreements (SPAs) for the great majority of their acquisitions. This legal procedure is the norm, whilst court-approved schemes are used in restructuring transactions.

An auction sale and purchase agreement and the SPA for privately negotiated transaction may differ significantly. The parties have more time and flexibility to discuss each aspect of the SPA in a privately negotiated transaction where buyer and seller negotiation powers are more balanced.

An auction sale SPA, on the other hand, is a more uniform and seller-friendly procedure (intended to limit negotiations to a few essential points).

The auction SPA draft is prepared beforehand by the seller and made available to each bidder, requiring comments and final mark-up along with the submission of the final binding offer.

The PE buyer in Italian PE transactions is nearly always newly incorporated as a special purpose vehicle (SPV) known as “BidCo” (either an Italian joint-stock company or an Italian limited liability company) owned by the PE fund or a parent company owned by the PE fund for a number of reasons.

BidCo is a clean legal entity created for housing the target company following the acquisition and keeping the fund’s other investments apart and segregated.

Financing the PE transaction requires use of the target’s assets as collateral for debt raised at the BidCo level and this is normally achieved with a “debt push-down” by merging BidCo and target following the acquisition.

Using an SPV streamlines governance and documentation (where PE fund is not normally a party to the SPA, which is signed by BidCo).

In Italy, PE transactions are typically financed through a combination of sponsor equity and acquisition debt. For the equity-funded portion, it is standard market practice – particularly in competitive or cross-border deals – for the PE sponsor to issue an equity commitment letter. This provides contractual certainty of funds and serves as a critical assurance for both sellers and financing counterparties regarding the sponsor’s execution capability.

As for the debt-funded portion, while not universally adopted, it is now customary for PE sponsors to secure fully committed financing at signing. Debt commitment letters – issued by banks or private credit funds – are frequently supported by detailed term sheets or near-final documentation, offering a high degree of execution certainty. This has become a key differentiator in auction-driven or large-cap transactions, where certainty of funds is often decisive.

Over the past twelve months, reduced access to syndicated lending and heightened market volatility have further accelerated the structural shift towards private credit. In this context, unitranche structures have gained significant traction, particularly in mid-market LBOs, thanks to their streamlined execution, borrower-friendly terms and structural flexibility.

Typically provided on a buy-and-hold basis by debt funds, unitranche financings feature elements such as PIK toggles, bullet repayments, covenant-lite terms, grower baskets and equity cure rights. These features collectively enable greater liquidity preservation and strategic optionality, making unitranche an increasingly attractive solution for sponsors.

Notably, the cost differential between unitranche and traditional syndicated loans has significantly narrowed. This pricing convergence is driven by competitive pressure among debt funds, abundant dry powder, and the rise of dual-track processes ‒ where sponsors simultaneously pursue both bank and private credit options to maximise flexibility and optimise terms.

In certain transactions, sponsors have opted to close on an all-equity basis, arranging debt financing post-closing. This evolving approach further underscores the strategic importance of equity commitment letters, bespoke interim solutions, and flexible financing architectures to ensure deal certainty and timing in a tightening credit environment

Deals with a consortium of PE sponsors are fairly common in Italy, especially for large deals with large equity tickets where sponsors pool resources and gain from one another’s experience with this “club deal” strategy. In the Italian market, co-investment by other investors in addition to the lead PE fund, or GP, is also common (especially to boost their fund-raising).

There are two basic structures for co-investments.

In the first place, limited partners (LPs) who are already investors in the lead PE fund are given the chance to directly invest into a particular deal, frequently on a no-fee, no-carry basis. This often occurs in the context of the fund raising.

External co-investors, such as family offices, sovereign wealth funds, or other institutional investors, are also offered the chance to make a passive (merely financial) investment alongside the lead sponsor.

Occurring less frequently are investment consortiums made up of a corporate investor and a PE fund. These transactions are usually strategic in nature, with the PE fund making available the investment/M&A expertise and the financial resources, and the corporate partner offering its industry knowledge and possible synergies. Such a co-investment structure requires the PE fund to carefully negotiate exit strategies and governance rights to ensure its interests in these areas are protected as the industrial partners may have different priorities.

A fixed price with a locked-box mechanism and completion accounts with price adjustment are the most common types of consideration structures utilised in PE transactions in Italy. Locked-box mechanism is preferred by the selling PE fund as it facilitates clean exit with no ties for price adjustments. A buying PE fund is sometimes receptive to a completion accounts mechanism if the target’s financial position at signing does not offer full confidence.

In the locked-box structure a recent “locked-box date” balance sheet is used to determine the price.

The buyer takes on the target’s economic risk and benefits as of the locked-box financial statements date. The seller is liable for any “leakage” of value (ie, value transfer in favour of the selling shareholders or their related parties) that takes place during the locked-box period outside the company’s ordinary business activities.

Earn-outs and deferred consideration are also common features, particularly when there is a significant valuation difference between the buyer and seller.

Earn-out ties a portion of the purchase price to the target’s future performance and is paid at a later stage.

Interest (ticking-fee) is frequently charged on the price in Italian PE transactions that use a locked-box consideration structure in order to compensate the seller for the time value of the money since the buyer only pays the price at closing, even though it will acquire a right to the value of the business from the locked-box date. Interest is computed from the date of the locked-box balance sheet until the closing date.

The interest rate is typically determined by adding a margin to a commercial benchmark rate like EURIBOR. It is not common practice to charge “reverse-interest” on any amount that leaks during the locked-box period. A specific indemnity from the seller to the buyer is the main remedy to deal with leakage (eg, dividends, management fees, related parties’ payments, etc) in order to prevent value from being taken out of the target company for the benefit of the seller or its affiliated parties.

Disputes on consideration structures employing completion accounts are generally settled by a dedicated expert (eg, accounting firm) acting as an impartial third party using the accounting rules and guidelines outlined in the sale and purchase agreement (SPA). This solution is preferred over litigation because the expert deploys, in a quicker fashion, the required specialised knowledge in accounting issues.

The requirement for an expert is less frequent for transactions that use a locked-box mechanism as there are no completion accounts to dispute.

Disputes on locked-box structure relate mainly to “leakages” – ie, the seller’s improper extraction of value – and usually an expert does not handle these disputes (which are litigated in court or before an arbitration panel); and also because they do not merely depend on the application of technical and accounting rules, but rather on an assessment of facts and rules.

Only mandatory and suspensory regulatory approvals and clearances (eg, merger control and foreign direct investments, so-called golden power) are typical conditions precedent to closing in Italian PE transactions.

Non-regulatory conditions are less frequent.

In particular, PE transactions are usually not contingent upon financing as this is usually committed at signing through for buyers backed by PE.

Conditions pertaining to third-party consents from crucial contractual counterparties are frequent, but they are not standard as such consents are sought on a best-efforts basis between signing and closing. In Italian private transactions, material adverse change (MAC) or material adverse effect (MAE) clauses are also quite uncommon.

It is uncommon for a PE-backed buyer in Italy to agree to a full-fledged “hell or high water” clause (eg, forcing the buyer to take all necessary actions, such as selling off specific assets, in order to obtain regulatory approval) in transactions where there are regulatory requirements, whilst PE-backed buyers are generally willing to undertake reasonable efforts to obtain clearance (which, however, does not encompass mandatory divestures, etc) from merger control authorities. A far more cautious approach is adopted in relation to foreign investment clearances as it is a less predictable and more uncertain area of law, often influenced by political sensitivities and government agendas and the EU’s Foreign Subsidies Regulation (FSR) regime, which is new, mainly untested and not a straightforward merger control review.

In Italian PE deals, it is uncommon in conditional deals with a buyer backed by PE for the seller to be awarded a break fee (which in other jurisdictions is aimed at compensating the seller for expenses incurred and missed opportunities in the event that the buyer backs out of the transaction for non-seller-related reasons).

If a break fee is agreed (especially in the form of an obligation to incur transaction costs and expenses in case of no deal), the triggers are very specific and linked to the buyer’s failure to complete the transaction (eg, defaulted undertakings to fulfil a ”hell or high water” commitment previously accepted).

The amount of these break fees normally varies between 1% and 3% of the deal value. However, under Italian law, if the beak fee is subsequently deemed as a penalty, it may be lowered or declared unenforceable by a court.

On the other hand, reverse break fees (which are meant to give the seller a predefined financial remedy in the event that a conditional agreement falls through for a buyer-related reason, such as not being able to secure financing) are rare.

Italian PE deals have a limited number of triggers (eg, condition precedent not being met by a certain long stop date – normally two to six months following closing; breach of warranty occurred before closing, causing damage in excess of a certain value) entitling either party to terminate the sale and purchase agreement.

A PE fund’s main goal when it exits is to make a clean break and give the money to its investors as quickly as possible, with as little or no liability left over. Accordingly, a PE fund acting as seller in Italian transactions only offers a few “fundamental” warranties (eg, ownership of shares, capacity and authority).

Accordingly, the buyer is required to do its own due diligence investigations and protect its risk through management warranties (provided that management is a seller too and/or it rolls-over) and warranty and indemnity (W&I) insurance.

On the other hand, a PE fund acting as buyer will do a thorough due diligence and require a wide range of business warranties, specific tax and other indemnities, and a strong liability system with a higher cap and a longer claims period.

When a PE fund sells a portfolio company on the Italian market, it usually gives fundamental warranties capped at the price and time-barred after a period extending up to statute of limitations.

These warranties are generally supplemented by management business warranties (including tax warranties, financial accounts, compliance with the law, material contracts, employment matters, litigation, etc), especially if the members of the PE portfolio company’s management team are sellers too or are rolling over their equity.

Management warranties are given at no financial risk for the management, except in case of fraud, as they are intended to allow for the buyer to secure a warranty and indemnity insurance protection should the case management business warranties prove not to be true.

On the Italian market, liability cap under the W&I protection generally varies from 10% to 30% of the transaction value (ie, target’s enterprise value), with basket usually set at 0.25% of the transaction value.

Time limitations under W&I coverage are generally as follows:

• five years for fundamental warranties;
• seven years for tax liabilities;
• five years for employment and social security matters, as well as environmental issues; and
• three years for the business warranties.

Generally, W&I covers unknown risks. However, there are cases where known risks are covered too (eg, title-related risks or certain tax risks – eg, VAT and withholding issues, etc). The known risks insurance protection obviously comes at a higher premium.

Although it is not a rule, corporate sellers tend to give a more comprehensive set of warranties comprising both legal and business warranties. Liabilities cap tends to range between 10% and 20% of the purchase price and time limitation tends to vary between 12 and 36 months for business warranties and statute of limitations apply to fundamental, whilst tax and employment are generally time-barred after the fifth anniversary of the closing, just like environmental liabilities.

Usually, data room disclosure is accepted, thus limiting the scope of protection of the warranties, provided that disclosures occur in a fair and transparent manner.

The protection’s limitation is often mitigated by special indemnities or price adjustment mechanisms whereby the financial risks of issues which are disclosed (thus not being covered under the general unknown risks W&I protection) are allocated to the seller. However, this is more frequently accepted by corporate sellers, while PE funds often seek for known risks W&I insurance.

In Italian PE deals, warranty and indemnity (W&I) insurance taken up by the buyer is now the norm (especially when the PE fund is the seller and the sale occurs through an auction process) as W&I helps find an acceptable compromise between the buyer’s desire for full protection and the seller’s preference for a clean exit with little or no liability risk tail.

It is not yet given practice in the Italian market to use the so-called synthetic W&I, where declarations (in lieu of the seller business warranties) on the desired condition of the target are given by the buyer.

Escrow or retention account to fulfil indemnification obligations is rarely accepted by PE players. Non-compete arrangements is another form of protection and a non-compete is not usually given by the PE seller.

But for the management team, a non-compete and non-solicitation clause is normal and is usually found in both the employment contract and the shareholders’ agreement.

Disagreements in PE deals are preferably settled through out-of-court solutions, and namely expert determination as it is a quick and effective resolution for disputes usually focusing on financial matters which are more familiar to experts than judges. In particular:

• completion accounts such as correct application of accounting principles, the inclusion or exclusion of certain items, the valuation of certain assets and liabilities, etc;
• earn-outs such as calculation of performance metrics such as EBITDA, how events occurred following the closing date can affect the earn-out, or whether or not the buyer acted in good faith in order to decrease the earn-out payable to the sellers; and
• leakages such as undue transfer of value outside the target when a locked-box mechanism has been applied.

Expert determinations can also be litigated in court, though in limited cases (ie, absence of the expert’s determination, manifest error or unfair determination).

Litigation among sellers and buyers over warranties and indemnities provisions are replaced by discussions (although fairly rare) between buyer and insurer under warranty and indemnity (W&I) protection.

Disputes on the application of provisions concerning the management team and its relationship with the target company (eg, underperformance provision and leavership provisions, both centred on the termination of the relationship with the management and the alteration of the terms of the management incentive instruments attributed to the terminating management).

Litigation is brought before court or arbitration panel. Arbitration is the preferred venue for PE investors as it is confidential, thus possibly limiting the adverse effect on the concerned parties’ reputation. Arbitration is also much quicker, and the background of arbitrators is often such that they have expertise which allows for a deeper and more knowledgeable understanding of the matter subject to dispute. Arbitration is, however, regarded as much more expensive compared to litigation in court.

In Italy, it is common for PE investors to bid on public-to-private (P2P) deals. The Italian Consolidated Financial Act and the regulations issued by CONSOB, the Italian financial markets regulator, govern P2P deals.

In a P2P deal, the target company’s board plays an important role, being required to publish a detailed opinion – based on a fairness opinion from an independent adviser – on whether or not the tender offer provides a fair price for the shareholders and making consequential recommendations to shareholders. The board therefore has the duty to ensure that the offer is fair and clear, and that shareholders are sufficiently informed to make their decision, and it must also be mindful of its legal obligations to prevent any defensive measures that could undermine the offer, unless a prior authorisation from the shareholders has been obtained.

In Italy, “relationship agreements” or “transaction agreements” between the bidder and the target are not as common as they are in other jurisdictions. However, the bidder will typically engage in pre-offer discussions – without contractual effects – with the target’s board to secure a favourable opinion.

Under Italian law a mandatory tender offer (MTO) must be launched if a person directly or indirectly: (i) buys more than 30% of the voting securities; (ii) holds between 30% and 50% but increases their stake by more than 5% within 12 months; or (iii) gains control of a listed company in some other way. The by-laws of SMEs may set a different percentage for the threshold under (i), ranging from 25% to 40%.

In order to avoid circumvention of the obligation to launch an MTO, thresholds are deemed crossed not only by direct holdings, but also by holdings of different persons acting together, holdings of managed and affiliated funds, portfolio companies and potential holdings (ie, derivatives).

Recent discussions in Italy point towards raising these thresholds, but the 30% threshold is meant to remain in place.

Under Italian law (Italian Consolidated Financial Act) – which is in line with EU directives – a mandatory tender offer (MTO) must be launched if a person (or persons acting together) directly or indirectly acquires an Italian company’s shares with voting rights traded on the Italian stock exchange in excess of the thresholds indicated at 7.2 Material Shareholding Thresholds and Disclosure in Tender Offers.

When it comes to shareholding consolidation and attribution, which are very important to PE bidders, Italian law combines the holdings of people who act “in concert” (acting together) and/or own indirect holdings through affiliated entities or portfolio companies. This means that shares owned by funds, companies or affiliates that are connected to the PE group are added together to see if these thresholds have been crossed. So, bidders backed by PE need to carefully look at how their control and interaction/work with third parties are organised/managed, because if they own enough shares together, they may have to launch an offer even if their individual stakes are below certain levels. Also relevant is the concept of voting power, which considers direct, indirect and potential holdings (including derivatives), with mechanisms to attribute shares held by related entities in the broader PE portfolio or affiliates. This prevents people from circumventing mandatory offers by simply spreading shares among people who are related to them. In short, Italy’s mandatory offer system applies when a company has at least 30% of its shares (with adjustments for small and medium-sized businesses and large companies). It also combines the shares held by “related” parties and affiliated funds or portfolio companies that are important to PE players. As a result of this, PE investors need to consider all of their holdings, including those held through funds and portfolio companies, to make sure they are not accidentally crossing the mandatory offer thresholds and to prepare for any mandatory offer obligations that may arise. Recent discussions in Italy suggest that the government may consider raising these thresholds, but the 30% standard is still in place.

In Italy, cash-based tender offers are much more common (and more obvious for PE bidders) than offers where payment of the consideration is made in kind by swapping shares of the bidder with shares of the target. The law permits shares to be used as a means of payment; however, a cash offer is usually easier to make and gives the target’s shareholders more certainty and liquidity.

Under Italian law, with a view to ensuring equal treatment among shareholders, where an MTO is launched, the minimum price rules apply so that the offer price is at least as high as the highest price that the bidder (or any person acting together with the bidder) paid for the shares in the twelve months before the offer was launched.

The minimum price rule must also be carefully considered when it comes to voluntary offers as CONSOB, the Italian financial market regulator, can require an increase in the offer price if there is evidence that shares have been acquired at a higher price prior to the launch of the offer.

In order to ensure certainty of closing in the interest of minority shareholders and transparency in financial markets, the law and CONSOB, the Italian financial regulator, limit the use of conditions to the effectiveness of the offer for takeover bids in Italy, especially for MTO.

Indeed, MTO is, by its nature, intended to ensure that all shareholders benefit from majority premium paid to shareholders selling the stake crossing the mandatory takeover threshold. Accordingly, conditions are not permitted.

On the other hand, a voluntary offer can only be subject to a few conditions, such as the following.

• Minimum Acceptance Threshold – The offer may be conditional on a certain percentage of shares being tendered so as to ensure that the bidder obtains a controlling stake or a stake sufficient in size to squeeze out minority shareholders before they have to close the deal.
• Approvals From Regulators – The offer may be conditional on getting the necessary approvals and clearances from regulators.
• No Material Adverse Change – In a voluntary tender offer, there can be a condition that no material adverse change has happened in the target company’s business between the offer’s announcement and its closing. This is less common in private deals.

A subject to financing offer is not allowed for MTO. A financing condition is only allowed for a voluntary offer if it is a condition that must be met before the offer can be launched (ie, a tender offer pre-condition) and the bidder may demonstrate that the financing is highly likely to be secured.

In a public takeover, if a bidder does not acquire 100% ownership, or at least a controlling stake of a target, it can negotiate with the remaining minority shareholders a shareholders’ agreement where, among other things, it can secure for itself the right to appoint most of the board of directors and important executives as well as the right to veto certain reserved matters, such as approving the business plan, making capital investments, issuing new shares, or assuming new debt. These contractual rights give the bidder control over the company’s financial and strategic direction, even if it does not own the majority of the voting rights.

However, care shall be taken as the entering into of a shareholders’ agreement may, per se, trigger the obligation to launch a takeover bid in certain circumstances (eg, the agreement causes a de facto change of control, including as a result of the internal rules of the shareholders’ agreement dictating a change in the person exercising decisive influence in the shareholders’ agreement and, as such, over the company, etc).

For a bidder backed by PE to procure a “debt push-down” into the target, after a successful offer, a certain shareholding threshold is usually needed, although no such threshold is specifically set by the law. The debt push-down is usually not a simple procedure and may be subject to certain limitations. Usually, this is done by merging bidco/debtco/mergerco with the target company, which procures the target company taking on the bidco’s debt. Usually, the bidder can only merge if they have a significant stake in the share capital of target, usually more than 90% of the shares in order to make sure the merger goes through in accordance with a simplified procedure and to avoid legal challenges from minority shareholders. Shareholders not voting more than 5% of the shares cannot bring actions intended to obtain a court statement declaring the resolutions void (unless on the allegation that such resolutions are null, which, unlike voidable resolutions, under Italian law, occurs in limited cases).

After a successful tender offer, the “squeeze-out” process is the main way to acquire the minority shares that have not been traded in the tender offer process and acquire 100% of the company. If the bidder has at least 95% of the voting share capital after making the offer, the squeeze-out procedure can be started. If the bidder follows this procedure, they can force the acquisition of the other minority shareholders for the same price as the tender offer. The squeeze-out is mandatory and it is executed by a specific procedure supervised by CONSOB. The shares of the remaining shareholders are automatically transferred to the bidder, and the consideration is paid into a bank account.

Similarly, anyone who owns more than 90% of an Italian company’s shares traded on a regulated market must buy the rest of the listed shares from any holders who so require, unless the 95% shareholder restores a sufficient free float within 90 days so as to ensure that regular trading can continue.

While mandatory tender offers are triggered by full-fledged share purchase agreements whereby the listed company’s main shareholders sell their shares to the purchaser/prospective offeror, thus crossing the thresholds set by the law, in Italy, it is also common for the main shareholders of the listed target company to commit vis-à-vis the offeror to tender their shares and/or express their votes in P2P transactions in the context of a voluntary tender offer. These commitments are a key part of a PE bidder’s plan. They give the bidder a degree of confidence that their offer will be accepted and that they will be able to acquire a controlling stake, which makes it reasonable and justified to incur the costs of launching the takeover.

Negotiations on these commitments usually occur early on in the process, even before the offer is launched public, where the PE bidder enters confidential discussions with the target company’s main shareholders (who are usually family groups or other institutional investors) to get their support for the tender offer. These kinds of commitments are usually legally binding and require the shareholder to accept the offer or vote for it. However, they would normally allow the committing shareholders an “out” if a better, competing offer is launched. This “out” is usually a “fiduciary out” clause. It lets the shareholder back out of their promise if a third party makes a better offer that the target’s board agrees is actually better.

This clause is a very important balance between providing the bidder with security and allowing the shareholder to fulfil its own fiduciary duties to its clients or investors. In some cases, the agreement may also give the first bidder a “match right”, which gives them a certain amount of time to match the better offer before the “out” is called for.

Management equity incentives are very common and almost standard in Italian PE deals; they are intended to improve performance, expand the company and work towards a successful exit. Aligning the interests of the management team with those of the investors is crucial for creating value. Indeed, management equity is usually structured in a way that causes management to get the return on the investment only if the PE fund achieves its target returns (so-called hurdle). This structure is also intended to ensure that the return of equity incentive is taxed as financial income (and not as employment remuneration).

The amount of management equity depends on the size of the deal, how senior the management is, and the type of business. For tax reasons, an equity-based management incentive plan requires an investment by the management equal to or higher than 1% of target’s equity value at the time of the management’s investment. The PE fund usually decides how to allocate the equity-based incentive among the management team also on the basis of seniority, role, and past performance of managers and CEO’s inputs. The CEO and other top executives usually get a bigger share of the equity incentive, while other important managers get a smaller share.

Management’s participation in Italian PE deals is normally structured so that the interests of the management team and the PE fund are aligned and the risks and returns of both parties are clear. In particular, management’s return is proportional to its investment up to a certain threshold (ie, a hurdle rate where the PE meets its target money multiple and/or internal rate of return). As soon as such threshold is met by the PE fund, management return increases significantly and independently from the size of its initial investment (which is where the name “sweet” equity comes from). In essence, this structure is intended to ensure that the management team only gets an incentivised return if the fund’s own target returns are also met.

Preferred instruments are also used (although less frequently) in Italian PE investment, and they are intended to create a more articulated capital structure where the PE fund (and other investors) invest both in preferred equity/shareholders’ debt (often with senior and capped returns) and in ordinary equity.

The multi-layered capital structure is an important feature of PE deals because it facilitates the alignment of interest in a waterfall of returns. 

Vesting provisions are very common for management equity in PE deals in Italy in order to retain the management team members by linking their equity return to their continuing employment relationship with the PE portfolio company. The vesting schedule usually lasts five years and sometimes starts with a “cliff” (eg, no shares vest for the first year) and then continues with monthly or quarterly vesting.

Performance-based vesting is another (perhaps rarer) type of vesting that is based on a certain performance metric (eg, achieving certain level of EBITDA or increasing its enterprise value).

Leavership provisions are common too, in order to protect the company from any speculative attitude and regulate the loss or reduction in the management’s incentive if the employment relationship with the PE portfolio company is terminated.

Leavership provisions are triggered by the following occurrences:

• “good leaver” status (eg, death, disability, termination without cause, or retirement);
• “medium leaver” status, consisting generally in an underperformance of the portfolio company against the business plan; or
• “bad leaver” status (eg, quitting, being fired for cause, or breaking restrictive covenants).

In these cases, the manager’s vested shares are usually bought back at a lower price, usually at a nominal value or a small percentage of the fair market value. Managers lose all of their unvested shares.

Management shareholders in Italian PE deals normally agree to restrictive covenants intended to protect the portfolio company’s and the shareholders’ interest.

The most common restrictive covenants are:

• non-compete – prohibition to work for a business that competes with the portfolio company throughout the investment period and for a certain period of time after they leave;
• non-solicitation – prevention from soliciting the company’s employees, clients or suppliers to enter new business throughout the investment period and for a certain period of time after they leave; and
• non-disparagement – prohibition on damaging comments about the company or the PE fund in public or private.

There are legal limitations on restrictive covenants. For instance, a non-compete clause must be reasonable in how long it lasts, where it applies, and what it covers. The employee must also be paid enough money for the restriction, and such payment shall be contracted after the relevant termination.

A non-compete clause that does not include compensation is usually regarded as invalid. The typical duration for a non-compete is the entire investment term plus 12 to 24 months following exit.

The compensation is a key factor, and it is usually a percentage of the manager’s salary during the restriction period.

In Italian PE deals, minority manager shareholders do not usually enjoy specific protection rights such as governance rights or anti-dilution protections.

Unlike in other jurisdictions, in Italy, minority managers do not often get board appointment rights or veto powers. Most of the time, the majority PE investor retains the right to take all strategic decisions concerning the management and development of the business as well as the exit.

Anti-dilution protection in favour of the manager shareholders is rare, which implies that their equity stakes may be diluted proportionally during capital increases. Proportional pre-emptive rights to buy new shares exist by law, but they do not offer protection to managers who cannot afford to subscribe for any new rights issue.

Tag-along rights (ie, right to sell together with the PE fund at the same terms and conditions, pro rata) are the more common minority protection when it comes to divesting.

Minority managers’ shareholding is normally granted in furtherance to managers’ incentive plans. Accordingly, minority manager shareholders normally enjoy boosted financial rights if the PE fund achieves its target returns.

A specific statutory protection for minority shareholders in Italy consists in the withdrawal rights upon the adoption of certain specific major corporate decisions, but these are not specific or tailored protections for manager shareholders.

In Italian PE transactions, if the PE fund is the main, or a large, shareholder of the relevant portfolio company, it typically enjoys significant governance rights such as:

• the right to appoint board members;
• the right to veto certain resolutions; and
• the right to obtain all the information it needs.

The fund will usually appoint a mix of its own partners and outside industry experts on the board as well as the CEO. Shareholder approval is needed for reserved matters, which normally include the following.

• Financial matters – Approval of the annual budget, business plan, major capital expenditures above a certain threshold, and the incurrence of significant new debt.
• Corporate actions – Approval of any changes to the company’s articles of association, issuing new shares, and any mergers, acquisitions or disposal of strategic assets.
• Important appointments – The hiring and removal of key executives, like the CFO, may also be a reserved matter. Finally, the PE fund will have comprehensive information rights.

These rights go beyond what Italian corporate law requires. They usually include the right to get regular financial reports (like monthly management accounts and quarterly financial statements) and a detailed business plan. The PE fund will also have the right to inspect the company’s books and records and to have regular and periodic management meetings to review and discuss the company’s performance.

Under Italian law, the PE fund backing the majority shareholder can be held responsible for the actions of its portfolio company in very limited situations as the general legal principle is that the portfolio company is solely responsible, with its own assets and means, for its obligations.

Indeed, if the PE fund is found to have acted as a “de facto director” because it has and exerts power over the company’s daily operations and strategic choices, a court may regard the fund as a de facto director and the PE fund would be exposed to the liabilities of a director. This is difficult to demonstrate as the fund’s control and oversight would need to go well beyond what a majority shareholder would normally do and directly interfere with the management’s duties. Italian law additionally provides for a specific rule regarding when a “controlling company”/a company exercising guidance and co-ordination over another company is in breach of the principle of sound business management and as such it can possibly be held liable for the damages incurred by the controlled company.

If a PE fund exerts significant power and influence over a portfolio company and that power causes damage to the company, the fund and the portfolio company’s directors can be held liable for the damage caused to the company by minority shareholders and/or creditors. This could happen if the fund directs the company to do things that are possibly beneficial for the fund but not so for the company, like a fraudulent transfer of assets or a risky deal (like highly leveraged dividend recaps) that is clearly not beneficial for the company. To reduce these risks, PE funds normally make sure to clearly document in the portfolio company’s corporate documents that they are mere shareholders and not indirect managers (and accordingly act so as not to be perceived as if they were not just shareholders).

In the past year, PE divested from their Italian portfolio companies not only via private sales to other PE-backed investors or companies and IPOs but also through other innovative solutions. One interesting trend is the secondary buyout, in which investors in a PE fund sell their whole interest in a PE fund to another fund. This is typically driven by the selling PE house, and it is more often not specific to a single portfolio company.

If the PE fund intends to make a specific divestment rather than a portfolio one, continuation vehicles are also used. The continuation fund structure offers a certain degree of flexibility as it allows for co-investment with other PE funds as well as with one or more investors of the first PE fund. Through the continuation fund structure, the PE fund retains an interest in the portfolio company on the assumption that the portfolio company will be able to increase its value.

Another trend – which is not a novelty in the market – is the use of dividend recapitalisation whereby the portfolio company takes on new debt and uses the relevant proceeds to pay a dividend to its investors. Dividend recap is a way to give money back to investors, even though it is not a full exit.

Drag rights and tag rights are very common in Italian PE deals as they are intended to ensure a clean exit for the PE fund.

The PE fund, as majority shareholder, has the right to force the other shareholders to sell their shares to a third-party buyer on the same terms and conditions (drag-right), unless otherwise agreed in order to, among other things, pay to the managers the extra return incorporated in their equity. This right is key as most buyers will not buy a stake unless it is for the whole company.

A “tag right”, also called a “tag-along right”, is conversely intended to protect the minority shareholders by letting them sell their shares to a third party along with the PE fund, on the same terms and conditions. Institutional co-investors, especially if they are LPs, may have stronger tag rights or other protections because they are experienced investors putting in a lot of money.

When PE funds (as well as other key co-investors) divest through an IPO in Italy, they usually have to wait 180 days – or the longer term agreed in specific lock-up agreements with the investment banks which assisted with the listing and the allotment of the shares – before they can sell their shares, in order to keep the share price stable after the IPO.

In Italy’s public markets, “relationship agreements” or “governance agreements” are not as common as they are in the UK or the US.

It is not uncommon that the PE fund, retaining for a certain period a stake in the listed company, continues to hold a significant governance position in the listed company.