Buy-and-build opportunities thrive in Italian market

Alessia Argentieri
25 April 2019

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In addition to the strong activity recorded on the buyout side, 2018 was also a busy year for Italy in the consolidation space. Alessia Argentieri explores recent activity and the challenges still facing GPs

Larger buy-and-build platforms have become more common on the local private equity landscape, with 39 bolt-ons in 2018 and eight add-ons in the first two months of 2019. Despite this strategy's increasing popularity, merging diverse companies and integrating differing business models can present several challenges, with success limited to a range of sectors – typically those characterised by a high degree of fragmentation.

"A buy-and-build strategy can be successful only if applied to a fragmented market, which offers a rich supply of potential target companies for multiple add-on acquisitions," says Marco De Benedetti, managing director and co-head at Carlyle's European buyout group. "This is essential to create a well-structured platform, as opposed to a collection of assets unable to organically integrate with the portfolio company."

The GP has recently completed the sixth add-on for its portfolio company Comdata, acquired via its €3.75bn Europe Partners IV fund for around €300m in December 2015. Comdata carved out PayCare from private-equity-backed Nexi in February. This acquisition followed the bolt-ons of CCA International, B2S, Win, Overtop and Digitex. The business has 42,000 employees in Europe and Latin America, more than 550 customers across various industries, and generates annual revenues of around €800m.

A few months earlier, Carlyle acquired a stake in a new group created by the merger of Investindustrial-backed B&B Italia, Flos and Louis Poulsen, three companies operating in the design industry. Flos made three bolt-ons under Investindustrial's ownership, including the acquisition of Ares, while B&B bought Arclinea and Azucena.

Complementary approach
The two GPs, which own equal stakes in the business, rebranded the consolidated group as Design Holding and plan to create a global high-end interior design platform able to bring together a collection of complementary brands. They intend to pursue further acquisitions in adjacent niches of the high-end interior design market in the coming months to enable the group to reach combined sales in excess of €500m.

"Both Comdata and Design Holding have been very successful buy-and-build operations, which allowed us to enhance and expand the companies' product offerings and skills, create long-term business relations with customers and increase operational efficiency," says De Benedetti. "This strategy would not be suitable for other companies in our portfolio, such as Golden Goose or Twin Set, where the success of the business is based on the prestige of a single, famous luxury brand."

A consolidation strategy can be particularly effective in a market such as Italy, comprised of small- and medium-sized companies, with a scarcity of larger businesses able to attract the interest of international players.

"Despite the risks that an integration strategy might present, the exponential growth that derives from building a strong consolidation platform can lead to increasing interest from international buyers and higher multiples in an exit scenario," says Marco Rayneri, co-CEO and partner at Aksia Group.

Aksia-backed Covisian, an Italian business process outsourcing specialist, has recently completed its first bolt-on outside Italy by acquiring Spanish client management business Grupo GSS. The deal was financed with equity drawn from Aksia Capital IV and a debt package provided by a pool of banks composed of Crédit Agricole, BNL-BNP Paribas Italy and Banco BPM.

Grupo GSS is the fifth bolt-on inked by Covisian, following the acquisitions of RBS, CSS, Vivocha, and Telesurvey. With this last acquisition, Covisian expects to reach revenues of €300m and employ a staff of 14,000 people across 12 countries.

In addition to increasing revenues, investments and operational resources, buy-and-build can also provide an interesting path to value creation at a time when multiples are particularly high. Rayneri says: "In this environment of high valuations, diversifying the investment strategy and building a strong platform through multiple bolt-ons can represent an alternative approach able to generate excellent returns."