Italy’s first mezzanine fund on track

Italian Mezzanine, Italy’s first mezzanine fund offering, is on track for a first close at the beginning of next year. Set up by Italian banker Roberto Liguori and with the backing and industry expertise of Gianfilippo Cuneo, founder of Bain, Cuneo e Associati, the fund is aiming for a final close at €100m in spring 2004. The new fund will make around 10 investments in Italian mid-market companies.

The Italian market has not traditionally had as great an exposure to mezzanine as the UK and northern European countries. This is mainly due to the fact that Italian banks until recently have always been willing to lend money at low rates. Roberto Liguori says: “There has always been a lot of senior debt available and at a very cheap price. And so until recently mezzanine in Italy wasn’t really needed because senior debt was so cheap and abundant.”

He adds that the fund has been structured very carefully to ensure all the right elements are in place to be able to access successful deals and to establish a good working relationship with the Italian banks, many of which are still unfamiliar with this form of financing.

Thanks to Liguori and Cuneo’s past track record in the Italian market, the fund already has a good working network with local banks, private equity players and entrepreneurs. In addition, Liguori stresses that being independent it is very important to cultivate a relationship will all the main private equity players in the region.

There is strong growth potential for buyouts in Italy but it is still a developing market and often mid-market companies are wary of taking on private equity backing. In the Southern European countries managers build a business for the long term and are less inclined, compared with their European peers, to sell a business on, says Liguori. On the other hand, owners may see mezzanine as a less threatening expansion capital tool as the mezzanine provider is not going to take control of the company.

“It is a cultural issue, but you also have to educate the owners to understand why the mezzanine is priced at 18%, for example, when banks have been pricing at around 6%. It will take time to educate those unfamiliar with the asset class, and that’s why the fund will initially focus on investing in private equity sponsored LBOs,” he says.

Players are optimistic in terms of mid-market buyout opportunities in Italy and with funds such as Claudio Esposito’s Clessidra, almost at its €1bn target and Investitori Associati also on the fund raising trail, Italian Mezzanine should have the cream of the crop if the team is successful in educating the Italian market to the benefits of such a debt instrument.