Illustration by Rafael Ricoy
The Italian economy has been contracting since the second half of 2011, and it doesn't appear that the country will exit the recession anytime soon. But amid the economic gloom, there's a ray of good news: Chinese investment into the country has increased. According to data from Thomson Reuters, the number of deals with a Chinese acquiror in Italy in 2011 and in the first ten months of 2012 has tripled to six from its 2007 level of just two. (Not all of the transactions were captured in the data.) While the number of completed transactions remains small—and lawyers say that deals often move slowly—Italian and international law firms are vying to get a piece of this work, betting that the number of Chinese deals in the country will increase significantly over the next few years.
Flush with cash, Chinese investors, attracted by the opportunity to acquire name brands and technical know-how, are looking at Italian companies that have suffered from a lack of liquidity and financing. Earlier this year, for instance, Cleary Gottlieb Steen & Hamilton advised Ferretti Holding, the company that controlled luxury yacht maker Ferretti SpA, as it sold a 75 percent stake to Chinese state–owned Shangdong Heavy Industry Group for $475 million. Italian firm Bonelli Erede Pappalardo, China's King & Wood Mallesons, and U.S. firm Akerman Senterfitt advised Shangdong. "For Shangdong, Ferretti was a great deal," says Roberto Casati, the Cleary partner who led the firm's team on the transaction. "It acquired state-of-the-art knowledge in yacht-making that was built up over decades, and has incredible potential for growth in the Chinese market."
In another deal involving a well-known Italian brand, Cleary's Milan office is advising the Moratti family holding company (the family also owns Italian refinery Saras SpA) that controls Serie A soccer club FC Internazionale SpA on the $70 million sale of a 15 percent stake of the soccer team to a group of Chinese investors. Cleary is also representing Inter on a separate matter with China Railway for an undisclosed contribution for the construction of a new club stadium. (Boutique Italian firm Negri-Clementi is advising Chinese Railway and the other potential investors on the ongoing deal.)
Gianni Origoni Grippo Cappelli & Partners is advising a Chinese private equity fund on the acquisition of a stake in an Italian clothing company. "Chinese investors are largely asking for investment opportunities involving fashion brands—even those that aren't the top tier but are representative of Italian quality," says Stefano Beghi, the Gianni Origoni partner who heads the firm's China practice.
Gianni, which has a nonexclusive best-friends relationship with King & Wood Mallesons, also represented Chinese credit rating agency Dagong in May on a joint venture with Italo-Chinese private equity fund Mandarin Capital, advised by Simmons & Simmons. The new entity, Dagong Credit Rating Europe, will go head-to-head with Standard & Poor's and Moody's when it begins issuing European credit ratings next year.
The alternative energy sector has also seen an increase in Chinese investment activity. "Until two or three years ago, our renewable energy clients were mainly European and U.S. investors," says Elvezio Santarelli, a Milan partner with U.K. firm Watson, Farley & Williams. "Since then, there has been a huge increase in clients from China and other Asian countries. They are now connected to 40–50 percent of the renewable energy deals we handle in Italy." In July 2011 Watson Farley advised Chinese firm Jiangsu Zongyi Co. Ltd on the acquisition of PV Italy One Srl, thus facilitating the construction and connection of a €55 million ($70 million) 13.5-megawatt rooftop photovoltaic plant, which is now Italy's largest integrated PV facility.
Lawyers say that Chinese acquirors tend to do a lot of window shopping. Yingke Varnai Luzi Crivellini & Associati—a joint venture established in March 2011 by China's Yingke, Hungary's Varnai & Partners, and Italian firm Advoco—has been advising Chinese investors that are interested in making acquisitions in the wine, food, and machine tools sectors. At press time, however, no transactions had been concluded.
China's bureaucratic requirements for exporting capital often delay deals, says Marco Franzini, the Milan partner who heads Simmons & Simmons's China practice in Italy. In order to bring capital abroad, investors have to first receive authorization from the Chinese government and other authorities, Franzini says. And while working with legal and investment banking advisers is par for the course for Western companies, some attorneys say that most Chinese companies aren't accustomed to delegating to advisers. "Even if a lot of Chinese companies have money, they do not have a lot of experience making acquisitions abroad," adds Marco Carone of Milan firm Carone & Partners—although he says that about 30 percent of his firm's revenue is due to China-related business.
"Chinese investors look at a lot of potential deals, but conclude only a small amount," says Gianni's Beghi. "But when they do deals, they tend to entail a significant investment."
