ITALY seems an unlikely place to be enjoying a boom in new listings on the stockmarket. It is full of family-run small and medium-sized enterprises (SMEs) that mostly rely for their finance on banks; and Italy’s banks are notorious for the bad debts still lingering on their balance-sheets. But Borsa Italiana, Milan’s stock exchange, has already seen 33 share issues so far this year, of which 24 have been full-fledged initial public offerings (IPOs). The number of listings so far already equals that seen in previous boom years in 2007 or 2015. With more expected before January, the exchange is likely to achieve the highest number of listings since the height of the dotcom bubble in 2000 (see chart).

A big reason for the surge is the Italian government’s roll-out in February of new individual savings accounts, known as PIRs, which offer favourable tax treatment. These have done better than expected. Asset managers have amassed €7.5bn ($8.3bn) in new PIR funds in the first three quarters of the year. Equita SIM, a boutique Italian investment bank, expects total inflows this year to reach €11bn. Of these funds 70% must be invested in Italy-based firms, with at least 30% of that in SMEs. So it has created a big new pool of investment capital. Since last December, the share prices of mid-size firms have risen by 39%, compared with 21% for the overall market.

Many Italian financiers and experts see the listings boom as part of an underlying structural trend rather than as a one-off blip, or accidental benefit of the banking industry’s malaise. Stefano Caselli of Bocconi University says that, 20 years ago, entrepreneurs tended to think that listing was too expensive and bothersome. Mr Caselli credits Borsa Italiana’s education efforts with changing attitudes, particularly a programme known as ELITE that coaches companies on corporate governance and capital-raising. This programme, founded five years ago, now counts 400 Italian firms as members. It has not spawned as many listings as the exchange had hoped. But it has helped raise awareness of other means of financing, such as private equity.

Not coincidentally, private-equity buy-out deals have also surged in Italy. The volume trebled from €1.7bn in 2012 to a record of almost €5.8bn in 2016. Private-equity managers see rich pickings in Italy, notably among SMEs (for large deals, prices are as sky-high as elsewhere in Europe).

Stefano Bontempelli of Renaissance Partners, an Italian private-equity fund that is part of Neuberger Berman, an American fund manager, says that after the financial crisis astute entrepreneurs realised that, to survive, they needed to expand and internationalise their businesses. Around 85% of all firms, and 60% of listed ones, are family-owned. Many have ageing bosses; outside investment is often helpful as they prepare for management succession. The boom in listings has made IPOs a much more feasible and attractive exit option for private-equity investors. They can even directly benefit from PIR; recent guidelines clarified that the law allows PIR assets to be invested in their funds.

The PIRs’ success has also added impetus to another phenomenon—special-purpose acquisition companies (SPACs), of which seven have listed so far in 2017, compared with ten in all of the previous four years. These vehicles start by raising cash, and then look for privately held companies to acquire; most are around €100m-150m in size, although the smallest of this year’s crop is €65m. Many are run by investment-banking and private-equity veterans. Equita’s own SPAC is actually a joint venture with a local private-equity firm. Equita’s boss, Andrea Vismara, argues that the SPAC structure allows for private-equity-style active involvement in the companies acquired. But Mr Bontempelli believes a SPAC’s shareholding is often quite passive, and that a conventional private-equity fund is better at navigating a firm through the “right transition” to becoming a public company.

How far SPACS and PIR accounts will transform the Italian corporate landscape is still unknowable. Even if inflows into PIR continue, it may be that the funds shift focus, towards property. Italy’s latest proposed budget law, submitted to parliament on October 31st, would allow PIRs to invest in this asset class, which had previously been excluded. Moreover, Italy’s election in spring 2018 could slow, or even reverse, the investor-friendly reforms of recent years. But for now, this is an area where policy changes have worked: the capital markets are gaining greater importance in the Italian economy. Equita, for one, is a believer. The latest IPO in Milan, on November 23rd, was its own.

Source: economist
Italy’s new savings accounts fuel a boom in stockmarket listings