When investment firm Emerisque bought MCS Italia, a leading Italian clothing company, it was following a path already trodden over the past couple of years by private equity houses and investors buying up – and into – the ‘Made in Italy’ brand.

It is easy to see the appeal: for the right foreign investor, investing in companies that design and manufacture products that fit in the Made in Italy brand is a hugely attractive proposition. As globalisation continues, so does demand for globally recognised brands. Emerisque’s ‘investment thesis’, published on its website, says that “80% of globally known brands across multiple categories come from four countries”. Italy is one of them. (Indeed, as a brand Italy boasts a recognition that is the envy of many multinational companies.)


Furthermore, Italy just happens to be a maker of brands that have what Emerisque calls “growth market brand momentum”, which is business speak for “times are good for them right now”. These brands tend to be in sectors such as fashion, jewellery, accessories and home furnishings. With rumblings in the eurozone, these companies are also relatively inexpensive to invest in at the moment.

At the same time, Italian family-run companies, which have previously been reluctant to open their doors to outside investment, are reviewing this ‘keep out’ policy. This is because for these Italian owners, times have changed. A continuing recession at home, a drought of domestic bank lending and uncertainty over the euro means that Italian companies with ambitions to expand (or even just to stand still) must look elsewhere, both in terms of growth markets and sources of capital.

Limited growth options

Italy is currently in recession and has a bleak outlook for the rest of 2013. As Giovanni Sanfelice di Monteforte, president of Business Club Italia, a London-based think tank on Italian affairs, says: “In the past 10 years there has not been a specific economic or political campaign to bring forward specific measures to help Italians expand in their own right. Labour laws are in desperate need of reform [and] banks will not lend money.”

In niche areas, exports are strong. Pier Andrea Chevallard is secretary-general of Milan’s Chamber of Commerce. He says: “No one knows that Italy is the third [largest] exporter in the world for machine tools. We have a lot of small and medium-sized enterprises [SMEs], which have the ability and potential to increase their share of foreign markets.

"Small companies can have flexibility and if they are in niche areas, such as high tech, design or furniture, then they are in quite a good position. However, further evolution into foreign markets is an absolute necessity.”

For the stronger Italian brands, interest from foreign investors and the potential to tap into external and far-flung markets has been irresistible. So it was that pan-European buyout firm Syntegra Capital bought the now ubiquitous Moleskine (of notebook fame), while NEO Capital, a London-based private equity firm, bought Valextra, a maker of luxury bags. There has been a French invasion too: luxury brands company PPR bought Brioni, an upmarket menswear brand, and LVMH bought jeweller Bulgari.

Removing bureaucracy 

There is growing support for foreign investment within Italy and for Italy to do more to attract this money. Even reforms intended to remove layers of bureaucracy may be finally coming to fruition. Alberto Toffoletto, a partner at NCTM, one of Italy’s biggest law firms, says: “The burden of red tape has been reduced through a substantial simplification of administrative and fiscal procedures. A simplified framework for limited liability companies has been established by the [previous] government of Mario Monti. A specific bundle of laws has strengthened the support for innovative start-ups and certified business incubators, through the removal of controls, permits and licences."

Labour laws are being simplified too, according to Mr Toffoletto. “Increased flexibility has been introduced on dismissal procedures, thanks to a faster, compulsory, out-of-court settlement procedure at a local level to handle dismissals needed for economic or other objective reasons," he says.

Change may also be coming as a result of the country’s sovereign debt crisis, if it forces through some level of privatisation (Italy was planning to sell off a range of properties and utilities owned by its central government) which could have knock-on effects. But there are still barriers to foreign investment. There is not the same international banking system within Italy compared to the UK, for example. Mr Chevallard says: "This means that foreign investors have to deal with many different players which makes investing more complicated."

Probably the most important FDI barrier is the fragmented nature of Italy’s corporate landscape, which is largely made up of SMEs with an annual turnover of less than €10m. "We need to accelerate the aggregation process and consolidate more of these small businesses so that we can attract more capital," says Mr Sanfelice.

Consolidation process

Increased consolidation and the attraction of greater levels of foreign investment are likely to go hand in hand. There has been much excitement over a new joint venture that has been established between Fondo Strategico Italiano (FSI), an Italian private equity fund with state backing, and investment house Qatar Holdings. It is a relationship that Mr Monti worked hard to secure and it will bring in €2bn over the next four years for Italian companies working under the Made in Italy label in sectors such as food distribution, fashion and luxury, furniture and design.

Maurizio Tamagnini, the chief executive of FSI, says: “The joint venture would like to fuel international growth and act as a catalyst of a consolidation processes.”

What does not appear to be a factor is political uncertainty. Many of the recent spate of investments in Italy have been made despite the political upheaval within the country. In the past few years, Italy has seen Silvio Berlusconi’s disgraced departure, Mr Monti’s unelected technocracy, the birth of Beppe Grillo’s populist and radical Five Star Movement, political stalemate following the general election earlier in 2013 and now Democratic Party member Enrico Letta’s grand coalition (with Mr Berlusconi lurking in the shadows).

Moving with the times

There is another school of thought within Italy, and that is that Italians should be building these brands not looking beyond the country's borders for help. (This is also a factor in the popularity of the FSI/Qatar Holdings joint venture, with half the fund being Italian-based investment.) Mr Sanfelice believes this view is partly about fear. “There has been a traditional hostility to foreign investment, and a desire to keep out foreign capital for fear of losing control," he says.

But could there be more to it than that? Mr Toffoletto says: “Italy's entrepreneurs have an unrivalled success in creating luxury brands across generations, but Italy is unable to grow a stronger business ecosystem. This inability, inherent in our DNA, has forced us to give away, often selling out, the genius of Made in Italy creativity to foreign investors. The medium to long term will be dependent on us and on our willingness to begin a dialogue, turning competitors into allies.”

Perhaps Italy’s many illustrious brand families should look to one of their ancestors, the famous strategist Machiavelli, who said (in approximate translation): “If you want to keep on being successful, you have to move with the times”.