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April 29, 2009

Revenue growth plummets in Italy

The Italian profession has taken a nosedive as the full effects of the economic downturn hit the revenues of firms.

This year’s International Accounting Bulletin survey reveals market growth of just 3 percent, the worst market result for Italian firms in at least five years (see chart, right). This modest growth is also the lowest among any markets this publication has surveyed over the past 12 months and considerably less than the 14 percent market increase in revenue for the 2006-2007 financial year.

Five firms experienced a decline in growth, including the second largest firm PricewaterhouseCoopers Italy (PwC). Only seven out of the 29 firms, networks and associations surveyed achieved double-digit revenue growth (turn to pages 11-15).

PwC’s result reflects the loss of major audit clients and a cooling down of transactions and IPO activity due to the credit crunch.

total revenue ItalyAlthough mandatory audit work remains stable, firms have noted that due diligence engagements have dried up.

RSM Italy partner Stefano Bianchi said the first quarter of 2009 was the worst in the past two years.

“In Italy, we had just 46 transactions with a value of €2.6 million ($3.4 million). This is compared with 77 transactions worth €21 million in the first quarter of last year,” he said.

DFK Italia executive director PierGiuseppe Ferri noted a 30 percent reduction in due diligence engagements compared to the previous financial year.

“We understand this variation is connected to the reduction of the extraordinary operations like M&A in Italy as a result of the economic downturn,” he said.

PwC’s business advisory practice generated €83 million in fees in the year to 30 June 2008. This is identical to the previous year’s result.

PwC’s advisory practice is split into two streams: performance improvement and business consulting; and transaction services, which includes due diligence, M&A, valuations and related work.

“Our second stream, transactions work, is clearly suffering due to the crisis. There is less work with private equities and extraordinary operations,” PwC Italy managing director Pierangelo Schiavi said. “Business consulting is a little bit different and depends on the industry sector. Financial services, government and health care are performing well. We have some problems with our industry clients, which have reduced their budgets for consulting work. The total amount on an engagement 2-3 years ago could be €400,000 to €500,000 but now it is less.”

PwC helps IPO clients prepare paperwork around initial listings, including the detailed prospectus. These activities often involve audit, advisory, tax and legal work.

“IPOs have completely disappeared in the past 12-18 months,” Schiavi explained. “There were about 15-20 IPOs per year. Of them we were involved in a little bit more than one third, but now it has gone to zero in Italy. I think the last one was 12 months ago.”

Schiavi says the average range in fees of an IPO engagement is between €400,000-€800,000.

“We have had some IPOs with amounts clearly above €1 million. If you perform about 10 or more of this IPO work in one year you have between €7 million to €10 million revenue coming from these activities,” he explained.

Although transactions work is dwindling, it is partly being mitigated by counter-cyclical advisory services such as forensic accounting, restructuring and business planning.


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