GP Profile: Arcadia

Arcadia is a private equity house specialised in strategic investments in majority and controlling minority stakes of small and medium-sized Italian companies. The firm targets businesses with high-growth potential, ambitious expansion plans and consolidation opportunities.

Established in 2009 and headquartered in Milan, Arcadia has raised two private equity funds since inception.

The GP has recently added a new asset to its portfolio and plans to start marketing the launch of a new private equity fund by the end of the year, Arcadia CEO Simone Arnaboldi tells Unquote.

Thanks to our results and our strong track record, we expect to attract the interest of a large base of LPs for our next fundraising project" – Simone Arnaboldi, Arcadia

Arcadia's third fund will be larger than its predecessor, targeting a size of around €100m. The GP plans to attract commitments from a base of loyal institutional investors – primarily Italian pension funds, banking foundations and institutions, but it also counts on attracting international LPs for the first time.

"Thanks to our results and our strong track record, we expect to attract the interest of a large base of LPs for our next fundraising project," Arnaboldi says. "We intend to broaden our scope both in terms of target size and investor base, with the addition of several European LPs and international players."

The new fund will follow the same strategy as Arcadia Small Cap II, which closed on €80m in May 2019 and is currently almost 60% deployed. The vehicle invests in Italian SMEs generating revenues of €10-50m and an EBITDA margin of at least 10%, with a headcount of up to 250 staff. It looks for assets operating in highly fragmented segments of the Italian market, targeting pockets of opportunities for consolidation.

Arcadia Small Cap II's portfolio comprises four companies, including Chiorino Technology, an Italian company specialising in leather tanning and manufacturing for the fashion industry, acquired by the GP in March 2018. Arnaboldi tells Unquote that the business has had a promising restart after a decrease in sales caused by the coronavirus outbreak and has broadened its product offering. Arcadia intends to boost the company's organic growth and reach turnover of €30m by 2022.

Arcadia Small Cap II also controls a 75% stake in plastic extrusion specialist Castello Italia, which was acquired by the fund from Chemical Project Holding in September 2018. Arnaboldi says the company performed well despite the pandemic. Arcadia forecasts a 30% increase in sales and a significant expansion of Castello Italia's customer base. In addition, the GP intends to boost the company's growth with external acquisitions in complementary industrial segments.

More recently, Arcadia Small Cap II acquired a 60% stake in pharmaceutical packaging manufacturer Grafiche Favillini from the founding Favillini family, who retained the remainder. The company inked an add-on in July 2020 by acquiring Idea Grafica, a producer of patient information leaflets and packaging for the pharmaceutical industry. Following the deal, the group reached turnover of more than €24m. The GP expects to further increase its size by acquiring a new company in the coming months, Arnaboldi tells Unquote.

In addition, the fund recently bought Starlaks, a salmon producer with annual revenues of around €16m. The GP intends to boost the company's growth and pursue a buy-and-build strategy by acquiring other Italian companies operating in complementary segments of salmon production or in other sectors of the fish industry.

Weathering the storm
"Our portfolio recorded a positive performance last year, showing the resilience of our companies despite the disruption caused by the pandemic," says Arnaboldi. "We also intend to proceed with our consolidation strategy, selecting some promising businesses able to add value to our buy-and-build platforms."

Arcadia also manages the remaining portfolio of its first fund, which closed on €53m in 2012, according to Unquote Data. The fund has a single asset remaining, eyewear company Vision Group. The GP told Unquote that it has been working on a sale for the business, but the process has been postponed because the pandemic has created a hostile environment for performing a successful exit.

"Vision Group has recorded significant growth despite the lockdown, achieving the largest market share in Italy," Arnaboldi says. "We intend to find the right buyer for such an attractive asset, even if that implies that we have to wait a bit longer for a more favourable exit environment."

The [coronavirus] emergency has… shown companies' founders and family owners the importance of having a financial partner that provides capital and expertise" – Simone Arnaboldi, Arcadia

Looking at the coming months, the GP forecasts a dynamic dealflow and plans to make some new platform investments. It expects to ink two deals by the end of this year - one in the beauty industry and one in the lighting sector - and possibly a third one next year.

"We have several deals in our pipeline and are already working on a new investment, which we expect to ink in the coming months," Arnaboldi tells Unquote. "Despite the pandemic, numerous sectors of the Italian economy have been active and have outperformed expectations. In addition, the emergency has accelerated the development of some ongoing trends across the local market and has shown companies' founders and family owners the importance of having a financial partner that provides capital and expertise. This trend will open new opportunities for private equity investors, especially for investment funds with a deep knowledge of the local economy, able to select good assets and capable of supporting their growth and long-term expansion."

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