HIG Capital strengthens footprint in southern Europe

"We see a lot of opportunity coming out of Italy," says Raffaele Legnani, managing director of Italian operations. A lot of companies that are very interesting from a business point of view have faced challenges in the recent past due to recession, the lack of credit financing from banks and the fact that most of them are structurally undercapitalised; these three factors mean companies need additional capital to grow internationally and expand through acquisitions."

A former founder of special situations firm Atlantis Partners, Legnani was also a partner at London-based fund Stellican and previously worked in investment banking at Goldman Sachs. The GP will focus on buyouts of Italian companies with a turnover in excess of €50m and EBITDA of more than €10m. "That's the backbone of the Italian economy," says Legnani.

The GP's average equity ticket in Italy will stand at €10-15m, though the figure can rise to a maximum of €40-50m before syndication with other HIG funds. Though the firm is yet to complete its maiden transaction from its Milanese headquarters, the pipeline is strong. "We are looking at a huge number of deals. We haven't completed any yet, but we will hopefully by the end of the year," says Legnani.

Debt opportunities will also be considered in the local market, including the acquisition of non-performing loans on the books of the Italian banks and direct lending to SMEs. Bayside Capital, HIG's credit arm, is no stranger to non-performing loans in southern Europe. In July 2013, Bayside bought a portfolio of failed loans from Bantierra valued at around €150m. The portfolio included consumer, individual and SME loans.

Feet on the ground
"I expect a recovery of the Italian economy soon. The timing is right and we've seen a lot of international funds closing their offices in Milan so there is a lack of private equity capital in the space that we work in," explains Legnani.

"Having an office in Milan is absolutely key," he continues. Indeed, just 30% of deals transacted in Italy in 2013 were completed by GPs without an Italian office, according to unquote" data, the majority of which were valued at the larger end of the mid-cap segment. "Every country has its own characteristics, but in Italy, in particular, people are quite sceptical so they prefer to deal with someone they know, or who at least speaks the same language. But we also have a very specific labour environment and legal structures, so there are many particular characteristics of the Italian market that require someone to manage the situation and expectations. You have to prove that you're really committed to the country, and everything is much easier when you've proved that."

The GP's growing commitment to southern Europe is clear. In 2012, HIG opened a Madrid office and appointed Jaime Berger to lead Spanish transactions. The office was bolstered by the recent hire of Juan Barnechea, former head of European origination at Riverside. Meanwhile, Spanish companies make up 5.9% of the firm's portfolio, according to unquote" data. And Italian headcount looks set to rise significantly in the near future. Says Legnani: "At the moment, we are three people in the Milan office, but that number will go up to around six very shortly. I'm probably spending more than 50% of my time recruiting at the moment to build capacity. But the new hires must have international experience. They have to know Italy and have operating experience in Italian businesses, of course, but they must also know how private equity is done in the rest of the world."

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• Topics
• Southern Europe
• Buyouts
• HIG Capital
• Apax Partners
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