Deal in focus: IGI sells 51% stake in Fabbri Vignola

In early May, Italian GP IGI tempted US-based private equity firm Lincolnshire Management onto Italian shores with the promise of a 51% stake in industrial group Gruppo Fabbri Vignola. IGI retained a minority shareholding in the company, which is the first Italian firm in Lincolnshire's portfolio, held in the $835m Lincolnshire Equity Fund IV.

"This was originally a family-run business," says Matteo Cirla, managing partner at IGI. "The founder was brilliant, but he was approaching 80 and there was no succession in the family. They wanted to find professional succession for the company, so they called us. He knew the IGI team and how we dealt with similar transactions in the past. Essentially, it's a question of reputation."

In 2011, IGI wholly acquired the asset via Fondo IGI Investimenti Quattro, which closed on €105.7m in 2007. As of today, the vehicle is 81% invested and has returned 77% of invested capital. Family-run Gruppo Chiarva also participated in the buyout, investing via the holding Stella Partecipazioni. The GP then embarked upon a turnaround strategy.

Conservative debt package underpins transaction

"Our first priority was to set up a professional management team," says Cirla. "We started with a CEO, but that was only the first step. We then moved to hire a CFO, head of human resources and we strengthened the teams in marketing, production, sales, R&D and subsidiaries in Germany and France. It was a real and deep turnaround of management. The second step saw a reshaping of all processes in the company beginning with reporting and bringing back some of the production activity that occurred abroad."

With a strengthened management team in place and improved processes, shareholders came to a fork in the road in summer 2013. One option was to sell the company entirely, though some shareholders opted for continued ownership and increased focus on international expansion. IGI mandated Mediobanca to explore opportunities.

Private process
"The process was very confidential," says Cirla. "There wasn't much public process in the market. But we made contact with New York-based Lincolnshire, who have an Italian person in their team but had never done a local transaction. Discussions began in December and almost immediately we understood the opportunity; they are focused on small- to mid-size transactions and like the hands-on approach, so we share the same ethos."

Based in Modena and founded in 1950, Fabbri Vignola is an industrial group focused on the production of machines and film products for food packaging. The company employs 500 staff and has a presence in more than 70 countries, with three production sites in Italy and Switzerland.

Lincolnshire's acquisition was supported by a debt package of around €40m provided by Banca Popolare dell'Emilia Romagna (BPER), Cariparma Crédit Agricole and GE Capital Interbanc. Existing creditors from the 2011 buyout, Cariparma and BPER, rolled over their debt. A capex acquisition line also underpinned the transaction. Overall leverage ratio was described as "quite conservative" at around 3x EBITDA.

Welcome to Italy
"In the last two to three years, US investors were preoccupied with the potential euro break-up and sovereign debt. Once they realised it would not break up, they discovered that it's much better to invest in a country like Italy, which has serious structural debt problems and some political issues – it also has very healthy small and mid-sized, export-oriented corporates where pricing is attractive. That's the basis of the strong appetite that we're seeing for the market from investors," Cirla explains.

"Our fourth fund has aggregate revenues among portfolio companies which is 35% generated in Italy, with the remainder generated abroad. It's not a case of buying Italian companies with turnover correlated to Italian GDP."

The private equity duo intends to grow the company in certain geographies. "One of these areas is the US. And of course, we expect Lincolnshire will be instrumental in getting there. We also foresee some external growth via M&A transactions. The ability to have shareholders with deep pockets such as Lincolnshire is also good news for the company," says Cirla.

As part of the transaction, IGI was able to partially cash in its original investment. Says Cirla: "It was a good return, but we think that there is a lot more value that can be extracted from the company in the future."

People
Matteo Cirla is managing partner at IGI. Ottavio Serena di Lapigio is managing director of Lincolnshire.

Advisers
Equity – Kirkland & Ellis (Legal); Chiomenti Studio Legale (Legal).
Gruppo Chiarva – CBA (Legal).
IGI – Di Tanno e Associati (Legal).

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