Italy is expected to be one of the EU economies least affected by Brexit. In this article our consultant Miriam Morbelli highlights some of market changes that are likely to occur post Brexit and what these mean for Italy.
The flow of private equity investment into Italy is expected to remain constant due to the appeal of Italian small and medium sized companies. These exemplify quality and excellence while being still affordable to foreign investors. The market has shifted from high value transactions to private equity investment into these smaller companies. Therefore we are seeing law firms focussing on transactions in private equity, asset management and fintech sectors involving smaller companies.
Much foreign investment into Italy in recent years has come from China. For example, ChemChina invested in Pirelli in 2015 and is a major shareholder. The move initially led to Pirelli being delisted but in October 2017 was able to relist. Also, Yoox-Net-Porter and Gucci have new headquarters in Italy. It is not uncommon to see foreign investors rely more on Italian law firms for assistance in introducing them to the market, legal system and issues they could face with bureaucracy unfamiliar to them.
In the broader market, Brexit’s effect on the Italian economy is likely to be somewhat beneficial. In fact, Milan has been mentioned as a potential, albeit secondary, rival to Frankfurt or Paris in the possible relocation of UK bankers as a result of Brexit and in 2017 Italy ranks 50 out of 190 countries in the World Bank ranking for ease of doing business . Legislative reforms adopted in recent years seem to have prepared a fertile ground for economic recovery and Brexit is likely to be an influencing factor in this respect. The banking crisis has been partially alleviated by UniCredit’s €13bn capital increase and the government’s rescue of Monte dei Paschi di Siena.
Other changes in regulations in recent years have already made Italy a more attractive market for doing business:
1. In 2014 resolving insolvency of Italian companies was made easier by facilitating access to restructuring procedures
2. In 2015 the government made starting a business easier by reducing minimum capital requirements
3. In 2016 new procedures were adopted to automate contract enforcement processes
4. In 2017 deductibility of labour costs and new calculation methods for real estate taxes were also introduced
What does Brexit mean for law firms in Italy?
An increase in the workflow of the Italian offices of international law firms is expected in regulated sectors, such as capital markets, banking, tax, IP and media. This will likely assist financial institutions and companies in the relocation of their businesses in other jurisdictions and in the operation of their English companies outside of the UK.
Also, Brexit is expected to have an impact on English law and its exportability. It is likely to cause an increase in the application of domestic Italian law and consequently benefit domestic Italian law firms. Commercial lawyers will have to face massive reviews of outstanding commercial contracts governed by English law and provide a plan for force majeure clauses which may be triggered by Brexit.
Brexit has also presented Italian firms the opportunity to set up in the UK. Some invested in the UK by opening offices shortly before the Brexit vote and some have created dedicated teams to assist clients in redefining their strategies in the light of Brexit. The decision to set up a presence in the UK in such a scenario has also been pushed by the increased attractiveness of UK assets due to the depreciation of sterling and by the need to remain competitive in assisting clients such as asset managers and private equity funds who do not have a presence in Italy.
We have also seen a number of law firms seek to hire UK qualified lawyers to relocate to Italy. This has become an attractive prospect for a number of reasons:
1. Devaluation of sterling: anyone working in the UK and then converting their salary to euros was losing out in years gone by. But now not only is the conversion better but also euro salaries are stronger.
2. The tax incentives approved by the Italian government to attract foreign professionals and to re-attract Italian talent which left the country previously.
3. The Italian lifestyle: the warm weather, good food and fantastic scenery all go a long way to encourage talent to the region.
While Brexit might not be beneficial to all of Europe, the impact of the UK’s exit on the Italian legal market seems to be largely positive. We are likely to see an increase in internationally qualified lawyers in practice areas like regulatory, capital markets, banking, tax, commercial contracts and IP and media.