Ares funds negotiate for Plenitude, but in Italy the bet is on private credit

(Il Sole 24 Ore Radiocor) - A bet on private credit in Italy for the American funds of Ares even if the most relevant operation in the immediate future, still under negotiation, is the entry into Plenitude as a minority shareholder. There is absolute secrecy on the exclusive negotiations with Eni and on the rationale of the operation, which could lead to a 20% stake in the company that markets gas and electricity with a 12 billion enterprise value, while the strategy of Ares Management Corporation in Italy and the reasons for the appeal of the financing market to medium-sized companies, starting with those in which private equity has a stake, are clearer. It is an asset class - explains Blair Jacobson, co-president, in an interview with Radiocor - that shows "a strong demand" and in which Italy is "relatively at the beginning of its journey, with about 20% of transaction financing coming from private credit, while there are markets in Europe where the percentage is already 50-70%".

In 2024, according to Aifi data, private debt funds - which in addition to direct financing include the underwriting of bonds, convertible bonds and participatory financial instruments issued by companies - concluded 168 operations, investing almost EUR 5 billion (the amount in 2019 stood at EUR 1.2 billion and in 2023 was close to EUR 3 billion). As of March this year, the investments already made in Italy by Ares amount to 1.6 billion and are mostly destined for direct financing to companies, but also for real estate, particularly in the logistics segment: with the opening of the new Milan office, which represents the first permanent presence in the country, the group expects to accelerate on this path. The group's firepower in the Old Continent has recently expanded with the establishment of the sixth fund (European Direct Lending Ares Capital Europe VI), which closed with EUR 17.1 billion in funding for a total investable amount of EUR 30 billion.

'The increase in demand for private credit in Europe was initially driven by regulatory and macroeconomic dynamics following the global financial crisis, but each market has had its own growth trajectory,' he explains. 'We have seen this development in all of our investment offices in Europe and each of these markets has distinct themes and opportunities. The private credit market in the UK developed first and fastest, but since then we have seen strong demand for this asset class in France, Germany, Spain, the Nordic countries and now also in Italy'.

Why is Italy's moment? "Italy has shown a number of compelling dynamics that underpin our approach to direct lending. The first factor is the growth of interesting companies, many of which are family-owned and in fragmented sectors that are potentially ripe for consolidation,' says the manager. 'The second is that the private equity segment focused on medium-sized companies in Italy is developing quite rapidly if you look at the deal flow: most of our activity within European Direct Lending is to finance these companies and these deals. Thirdly, regulators in Italy have realised that private credit can be a solution for companies and their owners, and have provided regulations that make it easier to operate. Fourth, there is ample room to reduce the dependence of Italian companies on banks through alternative forms of financing. According to an analysis carried out by Equita and Luiss Business School, in the last five years banks have been the source of 89% of loans to Italian companies compared to 82% of the European average.

The last factor, closely linked to the previous one - according to Jacobson - is the presence in Italy of many medium-sized companies, those with a gross operating margin of at least EUR 10 million: 'As in other areas of Europe, this is a segment that banks are looking at less and less, and this is a significant opportunity for subjects like Ares'. Bank of Italy statistics estimate total loans by banking institutions to non-financial companies with at least 20 employees at almost €550 billion as at 31 March: ten years ago they were €610 billion and at the end of 2011 €750 billion, although the figures do not follow a straight line since before Covid, in December 2019, they were below the current level (€535 billion).