GP Profile: FSI back on the hunt for deals

FSI was established as a spinoff from Fondo Strategico Italiano in 2016 and now operates as an independent and unrelated entity. It is investing from the FSI I fund, which held a final close on EUR 1.4bn in February 2019 and is now around 50% deployed. While the firm does not comment on precise returns, net IRR is already in the double-digits with a relatively short J-curve.

The Milan-based firm focuses on three main criteria for investments in Italian businesses: first, it deploys growth capital, rather than operating with a leverage buyout structure, with zero or moderate debt at the closing of a transaction, Tamagnini says. This allows for the debt capacity of the business to be used for the purpose of developing it further – an approach that is highly appreciated by family businesses that are "often at odds with high debt", he says.

The firm also looks to partner with Italian families and corporates via the acquisition of minority or majority stakes, having a governance agreement that usually allows some co-control rights.

Finally, FSI seeks a transformational equity story, looking to internationalise its portfolio companies, make them global consolidators in their sectors or niches, while bringing on good governance and a high-quality management team, Tamagnini says.

Investment and fundraising plans
FSI has been gearing up for investments in areas such as information and communications technology and healthcare, which it sees as likely beneficiaries of the recovery from the Covid-19 crisis, Tamagnini says. Over the last 12 months, FSI has bolstered its team of industry specialists with the hiring of one partner in the technology field and another two in the healthcare and biotech sectors.

Another area seen as a priority are companies in the typical "Made in Italy" niches, such as food and consumer products, especially those that are at the crossroads of their digital transformation. These typically involve businesses with potential to explore new frontiers, such as Asia, and might require investment to digitalise their distribution efforts, for instance.

FSI is planning to make two or three new investments over the next 12 months, Tamagnini says, adding that its deal pipeline is full. It targets minority and majority deals, investing equity tickets of EUR 80m-200m. The firm also has the "ambition" to conclude one further exit in the period, the CEO adds.

These transactions would likely bring FSI I to near 70% of capital deployed, and at that point the sponsor could look to raise a new fund possibly in 12-15 months, according to Tamagnini. The new vehicle would have a similar mandate and a target size not too far from its predecessor's.

The 2018-vintage FSI I vehicle has made investments in areas ranging from fintech to fashion and manufacturing. With a more prudent approach during the first year of the pandemic, FSI focused on portfolio management and prioritised investments in businesses that it was more familiar with and in sectors more resilient to lockdowns, Tamagnini says.

In March, the firm exited Cedacri, an Italian banking software group in a sale to Ion Group (the parent company of Unquote publisher Acuris), and subsequently reinvested in the company with the new owners.

FSI was also involved in an offer for a stake in the media rights of Italian football league Serie A, as part of a bidding consortium with CVC and Advent last year. The deal attracted FSI's interest due to the pandemic-resilient nature of the media sector, among other factors, but ended up not being closed, as the clubs that are part of the league could not find a quorum to agree on it.

As reported by Mergermarket last month, FSI and financial sponsor Style Capital engaged in exclusive negotiations to acquire LuisaViaRoma, an Italian online luxury fashion retailer. Tamagnini declined to comment on the topic.

Approach to deals
FSI uses its local presence and origination capabilities to engage in bilateral negotiations, Tamagnini says, adding that this approach allows it to stay out of auctions and obtain a fair entry price. It relies on its own knowledge of the market and the network of its industrial specialist partners to source deals, while it can also tap financial and industry advisers, he adds.

Having a EUR 1.4bn fund allows the firm to make investments as small as EUR 70m-80m and also to carry on as a mid-term partner for its portfolio companies as they grow, he says.

One example of this type of partnership has been Kedrion, a biopharma company specialised in plasma-derived therapeutic products, in which Fondo Strategico Italiano invested EUR 100m for a minority stake in 2012, before the spinout of FSI. The company, which at the point had a turnover of EUR 250m, expanded into the US with the acquisition of RhoGAM and grew from EUR 250m revenues that year to EUR 808m in 2019. In November 2019, Kedrion received a EUR 150m minority investment from FSI – at that point already an unrelated and independent entity from Fondo Strategico Italiano.

The company still has the Marcucci founding family as its majority shareholder and had the help of FSI to attract a manager with experience in global plasma-derivatives companies as its new CEO last year. In May this year, Kedrion acquired Canada-based Prometic Plasma Resources from Liminal BioSciences. With close to USD 1bn in revenues expected for this year and given that biotech firms tend to be a good fit for the public markets, Kedrion could be a good candidate for a listing in the mid-term, Tamagnini says, conditioning a potential IPO to the company's success in further market consolidation.

Flotations on the stock exchange are, in general, an important feature of FSI's strategy for its companies, he says. Packaging products maker Lumson and Adler Group, an acoustic and thermal insulation components maker for the automotive sector, have both been flagged as IPO candidates in press reports.

FSI also has growth via M&A as a "key ingredient" in the path set for its portfolio businesses. Adler Group is an example of the use of bolt-on acquisitions to grow the business, with the recent purchases of peer STS Group, from Mutares, and the Faurecia Acoustics and Soft Trims business from Faurecia. Lumson recently bought local competitor Belotti, while fashion house Missoni acquired furniture and design company T&J Vestor.

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