Italian private equity & venture capital quarterly update

Anticipating a record year

The boom in the Italian venture capital market looks set to continue for the whole of 2000 with figures for the first six months of the year revealing strong signs of growth, according to the Italian venture capital association, Associazione Italiana degli Investitori Istituzionali nel Capitale di Rischio (AIFI). Compared to the same period last year, investments were up an impressive 119% by value to L2,556 billion, invested in 288 transactions, whose number rose by 66%.

3i, in collaboration with PricewaterhouseCoopers lists the top 20 global private equity firms by investment, ranking Italy in fifth place with $1.9 billion. In terms of growth over the last five years, Italy is fourth, up by 59%.

Marco Vitale, president of AIFI, states that significant growth has been experienced in the start-up sector and there has been an increasing interest in high tech investments. In the first six months to June 20, 2000, the number of venture-backed companies continued to climb, reaching 147, compared to a total of 153 for the whole of 1999.

Breaking down the Italian private equity market in terms of sector, the start-up category took a 51% market share with 147 deals. Expansion followed with 96 deals, accounting for 33% of the market. There were 27 buyout transactions, with a 10% market share and finally replacement took the remaining 6% with 18 deals.

In terms of capital invested, buyouts attracted the majority of funds with L859 billion, accounting for 34% of total capital invested, followed by replacement with L744 billion (29%); expansion with L645 billion (25%) and start-ups accounting for the least capital with L308 billion (12%). However, this final figure is actually greater than the L285 billion that was invested in the start-up category for the whole of 1999.

Start-ups target high-tech

AIFI figures for 1999 reveal that of the L447 billion high tech investments, start-ups account for the majority with a L280 billion value. By volume, of the 131 high tech companies invested in, 106 were start-ups.Targeting the vibrant telecommunications sector, in March this year Internet Capital Group (ICG) announced a joint venture with Enel, Italy’s leading electricity company which aims to address B2B e-commerce opportunities in Italy and the wider European market. Under the terms of the agreement, Enel took a $25 million stake in ICG and the Italian joint venture will be capitalised at $10 million and split equally between the two strategic partners.

German bank Commerzbank AG and its Italian partner Generali are currently discussing plans to launch a new fund aimed at the European technology sector. The target will be up to €1 billion and the fund will concentrate on investments in the German and Italian markets.Recent funds launched include Alice Ventures MB Venture Fund I, a €150 million investment vehicle focusing on high tech deals; Euromobiliare’s Raffaello which launched last year with L92 billion for investment; CAPE launched Capeq Gate with L40 million for investment and Livolsi & Partners announced the closing of its Convergenza fund with L22 billion. Pino Venture’s second fund, Kiwi II closed in April on €500 million at over five times the size of its first fund, Kiwi I. The fund targets the fields of telecommunications, media and information technology. In September, the fund made two investments in Veniceplaza, an Italian supplier of solutions for accessing the e-business and Rapidsite, a Spanish reseller of hosting space and domain registration. Also this year, Investitori Associati closed its third fund, Investitori Associati Private Equity Fund III at L500 billion. Focusing on the Italian market, Arca Impresa Gestioni SGR SpA launched the Arca Impresa Duemila Fund with a target of L200 billion, focusing on small and medium-sized industrial and service-sector businesses in both Italy and other EU Member States, while also said to be contributing to the development of Italy’s domestic venture capital market. Interbanca Gestione Investimenti SGR SpA unveiled Interbanca Investimenti Due with a target of L150 billion, focusing on investments in well positioned medium-sized companies in the industrial or services sector.

Stable deal flow

Private equity players confirm that there has been a consistent buyout deal flow in Italy, with buyouts delivering better returns than most early-stage investments.

In February, Doughty Hanson scored its first Italian acquisition, said to be one of the largest leveraged acquisitions to be completed in the Italian market. The firm paid some €428 million for Fiat Lubricants Group (FL Group), one of Europe’s largest producers and distributors of automotive and industrial lubricants. FL was put up for sale by Magneti Marelli, a listed company, majority-owned by Fiat. In the same month, Schroder Ventures announced the acquisition of a 22% stake in CHL, an on-line retailer of PC-related products. Total deal value was L145 billion. The remaining equity is owned by the four founding shareholders.

In the run up to the summer holidays, Barclays Private Equity announced its acquisition of a 42% stake in Bluvacanze, an Italian holiday distributor. The company anticipates a flotation on the Nuovo Mercato in 2002.

Exits slowing down

In terms of exits, rate of growth was reported to have slowed down compared to last year’s performance. AIFI figures reveal that for the first six months of the year, there were 84 exits which reached a value of L512 billion. Of the total number, 71% were accounted for by trade sale, 10% successfully reached IPO and 8% were write offs. Of the total value, 65% were trade sale, 24% reached IPO and 2% were write offs.

Earlier this year, CVC Capital Partners announced the $155 million sale of General Optica Internacional, the largest optical retailer in Southern Europe to Italian eyewear manufacturer De Rigo. In March, De Rigo subsequently sold General Optica’s Italian business, Salmoiraghi & Vigano to an investor group comprising B&S Electra and Arca Merchant for $48.8 million.

August saw a significant step in the internationalisation of Italian businesses. Apax, Advent International and 3i sold their stakes in TDL Info media, publisher of Thomson directories, to SEAT Pagine Gialle, the Italian yellow pages publisher. SEAT PG bought 100 per cent of TDL for a value of £308 million and the assumption of debt.

Growing Italian venture capital

Established venture capital players are recognising the potential of the Italian market and this year saw the opening of several new offices. Apax Partners has strengthened its Italian base with the opening of its Milan office, headed by Giancarlo Aliberti. While looking for investment opportunities in the Italian market, Aliberti is also looking to roll out existing Apax Partners portfolio companies into the Italian market place.3i recently announced that it has opened a third Italian office in Padua, where Pietro Lifonti has been appointed director. The firm also has offices in Milan and Bologna.

Although Italy is a country brimming with entrepreneurial skills and a flair for innovation, its industrial and financial systems have not yet developed an efficient market where projects and private capital are able to complement each other and players stress that it is still very much a market that is discovering its niche.

Italy buyouts January1 2000 to October 20, 2000

In March an investor group comprising B&S Electra and Arca Merchant acquired Salmoiraghi & Vigano, retailer of optical goods for $48.8 million from De Rigo SpA.

In March, an employees cooperative group planned to acquire a 50% interest in Bacini di Palermo, a Sicilian shipyard.

Italiana Telecommunicazioni SpA, a switch manufacturer was acquired in March from Telecom Italia by an investor group comprising Clayton, Dubilier & Rice and Cisco Systems for $760.6 million.

B&S Ventures in May acquired a 20% stake in Sit Telecommunicazioni, a unit of Biokeparm Inc’s subsidiary Marcucci Group for $16.1 million.

In June, a management-led investor group acquired a 75% interest in Lepel Srl, a lingerie manufacturer for $14.3 million.

Schroder Ventures in June acquired I&T SpA, It services company for $63.7 million.

In August, an investor group led by Interbanca SpA and Techint planned to launch a tender offer to acquire the entire ordinary share capital in Sirti SpA, a telecommunications cable-laying service provider for $299.4 million from Telecom Italia.

CVC Capital Partners in September acquired Almar Group, manufacturer of protective footwear. Terms of the deal were not disclosed.

In October, a management-led investor group acquired ASA Italy Srl, developer of enterprise resource planning software for $0.9 million from Asa International of the US.

Source: Thomson Financial Securities Data