La Dolce Vita Will Return
For all its troubles, Italy is worth investing in; this year will be better than the last; we need a better stock market for small companies.
By inclination, I am a contrarian investor and so I recently backed a mini-conglomerate with various assets in Italy - not a place which is exactly flavour of the month. The business owns a hotel, a water park and restaurants, among other assets, and appears good value on certain measures. Time will tell if I am clever or a fool.
It is easy to be bearish about Italy. Its economy has been stagnant for years, its banks are weak, its demographics are worrying, it has a reputation for poor governance, the state has enormous debts and the national mood is very gloomy. However, Italy also has huge strengths Households are actually far more solvent than British ones. In areas such as design, fashion, food and drink, and manufacturing it has many outstanding companies. From Ducati to Ferrari, from Tod's to Prada, from Luxottica to Barilla, Italians are world-class exporters and brilliant engineers. Like much of Europe, it suffers from being locked into the euro at the wrong exchange rate - but that may change.
Meanwhile, the industrial base is highly fragmented - it has far more smaller, family-owned firms than almost any other comparable country.
This affects Italy's competitiveness, but also offers opportunities for consolidation. Given the extreme pessimism among the entrepreneur class in Italy, I believe there will be investments available on attractive terms in the coming years. Some might be distressed, some might be in the hands of banks, and others may well need capital expenditure and restructuring.
Whatever happens, I am sure the journey will be educational. There are many Italian citizens who are desperate for change and want to build a brighter future. I have already met a number of impressive, enterprising individuals who are working hard to build winning firms and help turn their country round. Europe needs them to succeed.
Let us hope this year is a better one than the last. For those who invest in private companies, it has been profoundly frustrating; one of the most disappointing I can remember. We found it extremely difficult to put new money to work profitably - and wasted lots of fees to accountants and lawyers on aborted transactions.
Meanwhile, corporate finance professionals are being laid off at many firms and morale in the M&A community is poor. The volume of deals has slumped to multi-year lows. But intermediaries and private equity executives I talk to say 2013 will be an improvement, and I am fairly confident they are right.
There are rational grounds for such optimism: eventually, businesses will want to raise capital to expand - while others will be unable to put off selling any longer. Meanwhile, many entrepreneurs are expecting their profits to recover further next year, which should mean the gap between buyers and sellers is reduced.
There have also been some real positives from a difficult period. …