Driving value in Italian PE portfolio companies

December 2025  |  SPECIAL REPORT: PRIVATE EQUITY

Financier Worldwide Magazine

December 2025 Issue

The Italian private equity (PE) market is undergoing a deep transformation. The traditional ‘buy low, sell high’ paradigm is no longer sufficient, as investors face the daily challenge of identifying innovative, multidimensional strategies for value creation.

Creating value within portfolio companies has never been more complex for PE firms. In today’s challenging environment, marked by rising capital costs, persistent inflationary tensions and extended holding periods, the traditional levers of margin improvement and revenue growth are no longer sufficient. Success now hinges on a firm’s ability to position its portfolio for sustainable, scalable growth in a difficult and rapidly evolving market landscape.

This evolution reflects a broader global trend, but carries unique implications for Italy, where family-owned businesses, small and mid-cap enterprises and national champions dominate the investment landscape.

Italian portfolio companies have in fact shown over time strong potential but often face inefficiencies in processes and strategic direction, which impair their ability to fully capitalise on global opportunities. The question is how PE instruments can best support value creation in the current phase of the Italian market. With lower reliance on financial engineering to build value over time, except in distressed scenarios, the focus has increasingly moved toward operational improvement and innovation.

Operational improvement is a keystone of value creation

In recent years, operational initiatives have been strongly enhanced by strategic add-on acquisitions, which allow PE firms to build scale more efficiently by unlocking synergies, thus making portfolio companies more competitive and attractive in preparation for exit.

This approach has proven especially effective in sectors like industrial automation and food processing, where fragmented supply chains and regional specialisation create fertile ground for integration. In Italy, for instance, the Emilia-Romagna region hosts a dense network of small industrial automation firms, many of which are family-owned and highly specialised. PE investors have successfully pursued add-on strategies to consolidate these players, creating scalable platforms with enhanced export capabilities. Similarly, in the food processing sector, particularly in the Lombardy and Veneto regions, fragmented producers of niche goods have been integrated to build national champions with stronger distribution, branding and compliance infrastructures.

However, for an add-on acquisition to deliver its full potential, robust managerial and operational infrastructure is essential. In Italy, where many businesses are family-run and lack formal governance and management models, building a strong leadership team capable of integrating complementary businesses, aligning strategic goals and managing cultural transitions is critical.

In this environment, we have seen PE investors progressively placing value creation teams, composed of former senior members of consultancy firms or large corporations, alongside typical deal teams, to actively engage with portfolio companies’ management on value creation. The focus is on bringing expertise in operations, digitalisation, procurement optimisation and entering new markets, to build value and generate attractive returns for investors.

Strategic repositioning is another avenue through which value is built. This may involve entering new markets, launching new products or pivoting to more profitable customer segments. In Italy, where regional fragmentation and export dependency are common, PE firms help portfolio companies diversify their revenue base and reduce exposure to macroeconomic volatility.

Besides operational improvement, innovation – and specifically digital transformation – has in recent years emerged as a powerful lever for value creation in the Italian market, enabling portfolio companies to modernise operations, unlock efficiencies and scale rapidly.

From cloud adoption and process automation to data-driven decision making, technology is reshaping how businesses grow and compete. At the heart of this evolution lies artificial intelligence (AI), which empowers companies to predict customer behaviours, optimise supply chains and personalise services. AI-driven tools are no longer optional; they are becoming essential to outperform in increasingly competitive markets.

While digitalisation and AI can reduce the relative weight of personnel costs by automating routine tasks, they simultaneously elevate the strategic importance of human capital. The availability of highly skilled professionals, capable of managing transformation, interpreting data and driving innovation, is a decisive factor in successful transitions. In this context, talent is not just a resource but a competitive advantage, and building a resilient, tech-knowledgeable workforce is key to unlocking the full potential of digital initiatives.

Italy is beginning to assert itself more decisively in the digital transformation space. A recent initiative by a PE firm, in partnership with a leading technology provider, has launched a €300m fund aimed at accelerating AI adoption among small and medium-sized enterprises.

The goal is to help traditional Italian businesses evolve into globally competitive digital players. This reflects a broader shift in the market, where digital maturity is increasingly seen not only as a driver of operational efficiency, but also as a prerequisite for international scalability and long-term value creation.

While AI and digital transformation dominate the current narrative around value creation, sustainability and environmental, social and governance (ESG) considerations remain equally critical for PE portfolio companies.

Environmental impact, social responsibility and governance standards are no longer peripheral concerns; they are central to long-term performance and investor appeal. Companies that push ESG principles into their operations not only mitigate regulatory and reputational risks but also unlock new market opportunities.

Italy is increasingly aligning with this global shift. Several funds and investment platforms have begun to integrate ESG metrics into their screening and monitoring processes, particularly in sectors like manufacturing, food and fashion, where environmental and social impact are under scrutiny. Regulatory momentum is also pushing Italian portfolio companies to adopt more transparent and measurable sustainability practices. In this evolving landscape, ESG is not just a compliance exercise, but a strategic lever that complements technological innovation and reinforces long-term value creation from an exit perspective.

Having a clear exit route in mind may be the most critical component of the value creation process. In today’s environment, exits are no longer standardised endpoints – they are increasingly sophisticated and tailored to reflect the company’s strategic evolution. While traditional trade sales and initial public offerings (IPOs) continue to play a role, they are now complemented by secondary buyouts and management buybacks.

Each route demands rigorous preparation, aligning the company’s operational maturity, market positioning and governance structure with the expectations of potential acquirers. In Italy, where IPO activity remains relatively subdued, PE firms often pursue strategic sales to international buyers, particularly in sectors with strong export orientation, digital capabilities and ESG credentials. These exits are not merely transactional; they are the culmination of a transformation process that enhances enterprise value and unlocks long-term potential.

The Italian market presents a complex yet promising environment for PE investors. Structural challenges, such as regulatory intricacies, labour market rigidity and regional disparities, can slow transformation efforts. Yet these are counterbalanced by a rich industrial heritage, a vibrant ecosystem of entrepreneurial talent, and a growing openness to external capital and managerial innovation.

In this context, PE is uniquely positioned to act not merely as a financial sponsor, but as a catalyst for strategic evolution. By combining operational discipline, digital acceleration, ESG integration and leadership development, investors can unlock latent potential within portfolio companies and build platforms capable of competing on a global scale.

Looking ahead, the future of PE in Italy will be shaped by its ability to foster resilient, innovative and internationally scalable businesses. As macroeconomic uncertainty persists and competition intensifies, the emphasis on internal value creation will become not just a differentiator, but a necessity.

Success will depend on rigorous planning, capable execution and a deep understanding of Italy’s institutional, cultural and economic framework. For those able to navigate this complexity with clarity and conviction, the upside remains substantial, and the opportunity to redefine the role of PE in Italy is within reach.

 

Laura Li Donni is a partner at Legance. She can be contacted on +39 02 89 63 071 or by email: llidonni@legance.it.

© Financier Worldwide

BY

Laura Li Donni

Legance

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