ITALY Law and Practice Contributed by: Alessandro Corno, Luca Magrini, Pasquale Mosella and Rocco Pugliese, Alma LED
down” by merging BidCo and target following the acquisition. Using an SPV streamlines governance and documen - tation (where PE fund is not normally a party to the SPA, which is signed by BidCo). 5.3 Funding Structure of Private Equity Transactions In Italy, PE transactions are typically financed through a combination of sponsor equity and acquisition debt. For the equity-funded portion, it is standard market practice – particularly in competitive or cross-border deals – for the PE sponsor to issue an equity com - mitment letter. This provides contractual certainty of funds and serves as a critical assurance for both sell - ers and financing counterparties regarding the spon - sor’s execution capability. As for the debt-funded portion, while not univer - sally adopted, it is now customary for PE sponsors to secure fully committed financing at signing. Debt commitment letters – issued by banks or private cred - it funds – are frequently supported by detailed term sheets or near-final documentation, offering a high degree of execution certainty. This has become a key differentiator in auction-driven or large-cap transac - tions, where certainty of funds is often decisive. Over the past twelve months, reduced access to syndicated lending and heightened market volatility have further accelerated the structural shift towards private credit. In this context, unitranche structures have gained significant traction, particularly in mid- market LBOs, thanks to their streamlined execution, borrower-friendly terms and structural flexibility. Typically provided on a buy-and-hold basis by debt funds, unitranche financings feature elements such as PIK toggles, bullet repayments, covenant-lite terms, grower baskets and equity cure rights. These features collectively enable greater liquidity preservation and strategic optionality, making unitranche an increas - ingly attractive solution for sponsors. Notably, the cost differential between unitranche and traditional syndicated loans has significantly nar - rowed. This pricing convergence is driven by com -
petitive pressure among debt funds, abundant dry powder, and the rise of dual-track processes – where sponsors simultaneously pursue both bank and pri - vate credit options to maximise flexibility and optimise terms. In certain transactions, sponsors have opted to close on an all-equity basis, arranging debt financing post- closing. This evolving approach further underscores the strategic importance of equity commitment let - ters, bespoke interim solutions, and flexible financing architectures to ensure deal certainty and timing in a tightening credit environment 5.4 Multiple Investors Deals with a consortium of PE sponsors are fairly common in Italy, especially for large deals with large equity tickets where sponsors pool resources and gain from one another’s experience with this “club deal” strategy. In the Italian market, co-investment by other investors in addition to the lead PE fund, or GP, is also common (especially to boost their fund-raising). There are two basic structures for co-investments. In the first place, limited partners (LPs) who are already investors in the lead PE fund are given the chance to directly invest into a particular deal, frequently on a no-fee, no-carry basis. This often occurs in the con - text of the fund raising. External co-investors, such as family offices, sover - eign wealth funds, or other institutional investors, are also offered the chance to make a passive (merely financial) investment alongside the lead sponsor. Occurring less frequently are investment consortiums made up of a corporate investor and a PE fund. These transactions are usually strategic in nature, with the PE fund making available the investment/M&A exper - tise and the financial resources, and the corporate partner offering its industry knowledge and possible synergies. Such a co-investment structure requires the PE fund to carefully negotiate exit strategies and governance rights to ensure its interests in these areas are protected as the industrial partners may have dif - ferent priorities.
284 CHAMBERS.COM
Powered by FlippingBook