15 Est. 19 OUTLOOK M&A ITALY AND UNITED STATES Working Group M&A AmCham Italy White Paper October 2020 15 Est. 19 OUTLOOK M&A ITALY AND UNITED STATES Working Group M&A White Paper October 2020 American Chamber of Commerce in Italy INDEX I. INTRODUCTION ...........................................................................................................................6 II. THE M&A WORKING GROUP ..........................................................................................................8 III. MAIN FINDINGS ..................................................................................................................................9 CONTEXT AND BACKGROUND.........................................................................................................9 DATA ANALYSIS ................................................................................................................................. 12 KEY TAKEAWAYS FROM PAST INVESTMENTS ON THE TRANSATLANTIC AXIS ................... 13 I. M&A: A COMPARISON BETWEEN US AND ITALY ............................................................. ..14 ITALY /USA M&A 2019 – COMPLETED TRANSACTIONS .............................................................. 15 FOCUS ON INBOUND TRANSACTIONS ......................................................................................... 17 FOCUS ON OUTBOUND TRANSACTIONS ................................................................................... 19 1Q-3Q2019 VS 1Q-3Q2020 COMPARISON ................................................................................... 20 II. WHY COMPANIES INVESTED ON THE TRANSATLANTIC AXIS ................................. ..22 ITALY’S MAGNAGHI AERONAUTICA S.P.A. ACQUISITION OF US’ HSM-BLAIR ....................... 22 US’ HELIOS TECHNOLOGIES ACQUISITION OF ITALY’S FASTER GROUP ................................ 25 III. IMPACT ANALYSIS ........................................................................................................................ ..27 SALINI IMPREGILO & LANE INDUSTRIES ..................................................................................... 27 BERLIN PACKAGING & BRUNI GLASS ........................................................................................... 30 IV. MACROECONOMIC OUTLOOK ............................................................................................... ..35 THE ITALIAN ECONOMY IN 2020................................................................................................... 35 THE US ECONOMY IN 2018-2019-2020 ....................................................................................... 37 V. THE POLITICAL CONTEXT 2018-2019 .................................................................................. ..40 ITALY ...... .............................................................................................................................................. 40 UNITED STATES OF AMERICA ........................................................................................................ 42 VI. LEGAL OUTLOOK .......................................................................................................................... ..44 THE LEGAL CONTEXT IN ITALY: REFORMS FOSTERING FOREIGN INVESTMENTS ............. 44 THE LEGAL CONTEXT IN THE UNITED STATES: EFFECTS OF TRUMP’S PRESIDENCY ON M&A ACTIVITY .. 49 Paper - Working Group M&A 3 4 OUTLOOK M&A - ITALY AND UNITED STATES The competitiveness of a state is defined by the production capacity of its companies and by the ability to attract private capitals and implement policies to support their internationalization to compete in the global landscape. Companies that undertake M&A strategies, grow more in terms of both profits and revenues than those opting for other expansion strategies. Given the fully global context they operate in, M&A activity, if properly developed, represents an accelerator of the growth path of companies, which can, through this strategy, enter a market, expand or gain technological skills, know-how, distribution, and logistics. In light of the above, the M&A Working Group of the American Chamber of Commerce in Italy has launched its study to analyze the trend of the flows of investments between Italy and the United States according to specific economic-financial, legal and strategic perspectives. Bearing in mind the difficulties entailed by the global Covid-19 pandemic crisis, the research also highlights the progressive growth of outbound operations and a sectoral concentration of inbound operations. According to the study, it is essential to promote Italian excellence in the world. The constant dialogue between our Members made it possible to identify some macro-lines of action useful for increasing the mutual attractiveness between two highly interconnected economies like the Italian and American ones. To further enhance this growth, it is necessary to develop a clear vision aimed at welcoming even more American investors in Italy and at favoring and supporting our companies more in acquiring strategic assets in the United States. We hope that the results of this work can provide useful stimuli for Italian policymakers, our Members, and the business world in a broader perspective. Enjoy the reading. Simone Crolla Managing Director – American Chamber of Commerce in Italy Paper - Working Group M&A 5 I. INTRODUCTION AmCham is attentive to the news and needs of the business world and follows its developments with constant attention, with the ambition of proposing itself as a qualified door-opener able to meet the new challenges that the transatlantic axis poses every day. As evidence of this, numerous new Working Groups have sprung up over the years as a response to emerging phenomena and future trends. One of the latest has been the Working Group on M&A – launched in 2018 – whose coordinator is Mr. Antonio Pedersoli, Equity Partner of Pedersoli Studio Legale, assisted by his Co-coordinators Alessandro Iozzia, Partner of Brunswick, and Bruno Marino, Account Manager – EMEA of Mergermarket. The Working Group is currently looking at how, in recent years, there has been a notable increase in the number of acquisitions of historic "Made in Italy" brands by foreign capital. This trend has contributed to spreading a feeling of threat to the economic sovereignty of our production system due to the growing presence of foreign investors leading Italian companies. However, this feeling cannot overshadow the fact that investment flows towards our country can bring opportunities for development, growth, and innovation. It is indeed useful to consider how the “Made in Italy” companies themselves are often protagonists of investments and incorporations of foreign companies through M&A operations that, for large corporations, represent one of the most relevant ways to expand cross-border. Nor should we forget that even family-run companies, which constitute a substantial part of the Italian entrepreneurial fabric, become protagonists of acquisitions abroad to pursue dimensional growth aimed at supporting their business in the main reference markets. If properly developed, M&A transactions represent an excellent accelerator for companies’ expansion, both domestically and abroad. These transactions, in fact, allow to tap new markets, expand or gain technological skills, know-how, distribution, and logistics networks, as well as to acquire new managerial skills and governance practices that are more effective in business management. In Italy, the small size of companies has often significant impacts on competitiveness, also in terms of lower investments in research and development and the ability to internationalize as well as appeal to better-prepared managers. For this reason, private equity funds are particularly interested in the Italian market, where companies, despite the lack of large groups capable of acting as aggregating poles, still offer a high degree of excellence and innovation. Throughout January and February, financial markets seemed to be resilient against the fallout from COVID-19, the disease caused by the novel coronavirus. Amid increasing uncertainty, however, many corporate leaders are being asked to make strategic decisions. Just as the spread of COVID-19 was accelerating around the world, global equity indices reached striking peaks. The MSCI World, S&P 500, and STOXX Europe 600 indices all closed at record highs on February 19, 2020. In a matter of weeks, the situation changed dramatically. From their peaks through March 18, 2020, these benchmarks lost between 30% and 35%. At the same time, volatility went through the roof, with the VIX index reaching 83%,a level last seen after the 6 OUTLOOK M&A - ITALY AND UNITED STATES Lehman Brothers collapse in 2008. The M&A market, naturally, is affected by the deterioration of capital markets and the real economy. Before the crisis, the number of M&A deals globally was already on a slight downward trend (and deal value held up only because of several megadeals). This trend is likely to accelerate, at least in the short term. Historically, M&A activity has correlated strongly with the evolution of stock prices and risk, as measured by implied volatility. The harsh effects on the M&A market are already evident. Indeed, numerous deals have been pulled off or delayed in the short term. The decline in deal activity comes as no surprise given the challenges Italy has faced in its battle against the coronavirus. Italy was the first European country where the spread of the virus