Ergon Capital Partners, one of the newer players in Italy’s private equity market, together with Athena Private Equity and Vestar Capital Partners, announced at the beginning of April 2006 an agreement on a €375m management buyout of Seves, Italy’s Florence-based maker of glass insulators for power transmission equipment and glass bricks for interior design. The deal is expected to close in the second quarter of 2006.
The deal, effectively a secondary buyout, involves two niche markets with an Ebitda margin of 23% and established exposure to domestic growth in China – a country that is so often a factor in Italian private equity deals. In Italy, the “internationalisation” of family SME businesses typically forms part of the investment plan.
In the case of glass insulators – which with sales of €170m make up more than two-thirds of Seves’ turnover – the company lays claim to global dominance, supporting power infrastructure in more than 100 countries and commanding 70% of the global market in insulators.
Four of Seves’ 10 production facilities are located in China, one having been built within just seven months to supply a local market growth rate of 30%, as the country steams ahead building new power transmission lines.
With power generation plants located in the west of China, and factory facilities typically located in the east, an estimated 35,000km of power transmission lines are being built in China each year – the same length roughly as the entire existing network in Italy.
Besides China, the US is seen as having its own opportunities, given that the country has the largest established power transmission network, but also the oldest and in need of replacement.
On the other side of Seves’ business – architectural glass blocks – the plan is to move the product from a commodity into the retail sector, taking advantage of new techniques and product improvements since glass blocks first became fashionable in the 1990s.
The new private equity investors plan to support the management with acquisitions, and according to Marco Mantica, managing director of Vestar, there are five to six targets in sight, not only in glass insulators but also in other glass niches.
Vestar, the Milan-based, US-owned private equity house, has already established its credentials within the Italian market. It last grabbed the headlines with its January 2005, €360m acquisition of household name Fiorucci, Italy’s leading deli-meat and salami producer. This was a classic Italian deal, in which Fiorucci’s octogenarian family chairman first considered an IPO, then went along with private equity.
More recently, Vestar successfully sold on Selenia, the Turin-based automotive lubricants producer, to Kohlberg Kravis Roberts, in a €835m transaction signed in November 2005. The deal, Italy’s largest of 2005, raised eyebrows as it was the country’s first tertiary buyout and the investment had only been held by Vestar since October 2005. Selenia also marked KKR’s first step into Italy.
By contrast Ergon, led by Brussels-based Ian Gallienne and backed by Belgian financier Albert Frère’s Groupe Bruxelles Lambert and ING’s Parcom Ventures, was founded only in March 2005, but has been tipped as a future major competitor within Italian private equity.
Frère has also backed Banca Leonardo, the bank bought at the end of 2005 by ex-Lazard star Gerardo Braggiotti, to establish as his M&A advisory boutique.
Athena Private Equity, a fund underwritten by Mediobanca, has been active since 2000. It has investments totalling €220m across 17 companies and remains as a reinvestor in Seves.
Under the deal, Seves has been acquired from a group of shareholders that includes Athena, Fidia SGR, Intek, Interbanca and 3i.
The deal began with some of Seves’ original investors seeking a minority exit by the end of 2005. Ergon was lined up as acquirer, but the deal then moved to a majority sale.
Fineurop Soditiq, the M&A advisory boutique acting for the acquirers (and which has established advisory contacts with the Seves management through its first MBO and subsequent acquisitions), brought in Vestar as a suitable, equal partner, with exclusivity to carry out due diligence gained in March 2006.
For its part, Vestar professes to have been attracted by the fact that Luciano Zottola, chairman of Seves, is one of the best managers it has ever met.
Commenting on the deal, Zottola said: “We welcome our new partners to the Seves family. Their international presence and substantial capital backing make them the right partner for our company.”
Legal advisers to the private equity firms in the Seves deal were Gianni Origoni Grippo & Partners, Labruna Mazziotti Segni and Kirkland & Ellis. Legal adviser to the vendors was Simmons & Simmons. Financing is being provided by BNP Paribas, Banca Intesa and ING.