ITALY Law and Practice Contributed by: Alessandro Corno, Luca Magrini, Pasquale Mosella and Rocco Pugliese, Alma LED
10.3 IPO When PE funds (as well as other key co-investors) divest through an IPO in Italy, they usually have to wait 180 days – or the longer term agreed in spe - cific lock-up agreements with the investment banks which assisted with the listing and the allotment of the shares – before they can sell their shares, in order to keep the share price stable after the IPO. In Italy’s public markets, “relationship agreements” or “governance agreements” are not as common as they are in the UK or the US. It is not uncommon that the PE fund, retaining for a certain period a stake in the listed company, continues to hold a significant governance position in the listed company.
Another trend – which is not a novelty in the market – is the use of dividend recapitalisation whereby the portfolio company takes on new debt and uses the relevant proceeds to pay a dividend to its investors. Dividend recap is a way to give money back to inves - tors, even though it is not a full exit. 10.2 Drag and Tag Rights Drag rights and tag rights are very common in Italian PE deals as they are intended to ensure a clean exit for the PE fund. The PE fund, as majority shareholder, has the right to force the other shareholders to sell their shares to a third-party buyer on the same terms and condi - tions (drag-right), unless otherwise agreed in order to, among other things, pay to the managers the extra return incorporated in their equity. This right is key as most buyers will not buy a stake unless it is for the whole company. A “tag right”, also called a “tag-along right”, is con - versely intended to protect the minority shareholders by letting them sell their shares to a third party along with the PE fund, on the same terms and conditions. Institutional co-investors, especially if they are LPs, may have stronger tag rights or other protections because they are experienced investors putting in a lot of money.
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