Italian interior design sector attracts private equity suitors

The Italian design segment has long been regarded as a global leader. Yet despite its international appeal, the market remains highly fragmented. In the past year private equity players have started taking steps to address this.

Investindustrial has allocated €1bn from its €1.25bn fifth fund to businesses in the sector, most recently acquiring a majority stake in B&B Italia. Elsewhere, Private Equity Partners, Permira's Paolo Colonna and a group of private investors recently joined forces to form Italian Design Brands (IDB). The Milan-based newco will be the platform for a buy-and-build strategy targeting between five to six assets. In May, the group made its first acquisition – Udine-based Gervasoni.

"Furniture design is a typical Italian business," says Colonna. "If you look at the top of the furniture market, around 40% of global sales are of Italian origin. Yet, despite the numerous Italian companies, most are very small; we don't have any conglomerates, for instance. There is obviously potential for synergy between these different businesses – and scale is important if you want to be a real player in more challenging markets, such as the US or China."

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Fabio Sattin, executive chairman and founding partner of Private Equity Partners, describes IDB as an "invisible platform" whereby SMEs maintain autonomy and their own individual brand identities. "It would be a pity to lose years upon years of image and expertise," he says. Sattin also sees this as an opportunity for the private equity industry to improve its image by showcasing its role as a catalyst for growth: "The industry obviously generates a lot of criticism, but this type of private equity is the right type. It can play a very important role in terms of stimulating and orchestrating aggregation, which in Italy is one of the fundamental pillars for the recovery of the economy."

Given the international reputation of Italian furniture brands, it is curious such a strategy has not been implemented previously. "This type of group has been difficult to put together up until now as the entrepreneurs have been competing with each other for generations," says Sattin.

However, both Colonna and Sattin agree there is a shift in attitudes among SMEs within the sector towards their traditional rivals. "Entrepreneurial families are realising that you need scale; to simply be a great designer with great products is not enough," Colonna says. "What has changed is there is now a perception that this is a process that is necessary – the need to get together, become larger and benefit from synergy. The easiest and least aggressive solution is to apply typically fund-based logic."

Different targets
Despite operating in the same sector, IDB and Investindustrial will clearly be seeking assets in different price ranges. Investindustrial's shareholding in B&B Italia and Flos, a lighting designer in which it acquired a majority stake in 2014, have a combined equity value of around €500m. "IDB doesn't have €1bn of cash to invest in the sector, unfortunately," Colonna explains. "But we believe we can attract any amount necessary to support the development of the project at any stage, considering the support and interest we have received."

However, a characteristic shared by all potential target companies will be a focus on exports: 80% of B&B Italia's sales come from foreign trade, while IDB will target companies generating 60-80% of their revenues from abroad.

Sattin explains IDB is primarily considering a flotation in four or five years' time. While this may prove to be an exit for some investors, he says, it should be seen as an initial step for the overall group. The aim is to develop a brand that will benefit from greater international investment opportunities and enjoy growth many years beyond the length of a typical private equity holding period.

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• Topics
• Southern Europe
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• Investindustrial
• Private Equity Partners SGR Spa
• Permira
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