Family business investor buyouts: the Italian case

Family business succession is often viewed by academics and practitioners as a critical step in the life of a firm: it can affect a variety of matters, ranging from its competitive potential and its hierarchy to its own capability to survive. This is particularly true in Italy, where firms are by and large small or medium, with no direct access to the capital market, and where many entrepreneurs who actively took part in the industrial development of the second half of the 20th century are now giving up their jobs. In this paper we try to understand whether Private Equity can be an effective answer to this emerging issue or not. To this end, at this first stage of the research, we focused on those Italian deals where the Private Equity investor was heavily involved (meaning that it acquired at least a majority stake in the target family firm) and we examined the effect of the deal performances of firms (comparing the performance two years before and three years after the deal). The sample includes 21 of the 44 family business investor buyouts (FBIBO) carried out in Italy during the 1990s. The results are ambivalent. Some of the identified variables (such as Turnover, EBITDA, ...) are not statistically significant, meaning that performance trends before and after the deal cannot be tracked back to the role of the Private Equity investor. Case study analysis thus becomes more relevant. In the attempt to identify some pattern of behaviour, we clustered the firms according to their trends in Turnover and EBITDA margin (both adjusted by industry). This categorization gave some interesting results. Generally, PE intervention causes a discontinuity in the life of a firm, generating a shift in performance trends: from bad to good and vice versa. This result wasn’t expected, considering that target firms belonged mainly to mature business and that existing management was kept in place. Almost a third of the analyzed firms achieved very good performances after the PE investment, while another third displayed some signs of failure. In the middle, some mixed situations emerged, where growth was reached at the expense of profitability or where profitability was increased as growth diminished.