DBAG eyes Italian B2B industrials, services deals via local subsidiary

Listed mid-market GP Deutsche Beteiligungs AG (DBAG) was formed in 1965, and has raised a series of private equity and expansion capital funds to target DACH Mittelstand businesses.

The Frankfurt-headquartered GP announced the opening of its Italian office earlier in September 2021, as reported, appointing Capvis's Giovanni Revoltella as a partner to head its DBAG Italia team. 

The GP has announced two deals in Italy so far. The GP acquired pre-wired and empty cable conduits manufacturer PM Plastic Materials in August 2020, investing via its 2016-vintage DBAG VII vehicle. The opening of its Italian office came shortly after the firm made its second Italian deal, acquiring a minority stake in Itelyum, an industrial-liquid-waste recycling business backed by Stirling Square Capital Partners. The deals followed the appointment of senior adviser Antonio Corbani, who joined DBAG at the start of 2019.

Logical step
DBAG sees its expansion to Italy as a natural progression of its pre-existing strategy. "Part of the decision to establish DBAG Italia came from the simple observation that many competitors of DBAG's existing portfolio companies are Italian companies," Revoltella told Unquote. "Most of these are also mid-sized companies owned by an entrepreneur, which is typical to the German Mittelstand, which is DBAG's focus. So this is a natural continuation of the strategy."

The expansion to Italy is not likely to have a significant effect on fundraising, according to Revoltella. "Italy will only represent a portion of investment activity, so it will not revolutionise the fundraising activity," Revoltella told Unquote. "This will remain anchored by our traditional investors. DBAG has a strong investor base, which welcomed the evolution of the firm, as announced in the most recent fundraising."

DBAG does not have a set number of deals it intends to make in the Italian market, Revoltella told Unquote. However, Italian deals will typically see DBAG make equity investments of EUR 50m-150m.

The GP has made its two Italian investments to date via DBAG VII, but its next investments in the country will come from DBAG VIII, which has made four investments so far. The EUR 1.1bn vehicle held a final close in May 2020 and generally invests EUR 40m-100m in mid-market companies with enterprise values of EUR 75m-250m. The GP expects that EUR 200m-300m in equity will be deployed in Italy in total. As a listed GP, DBAG also has the option to co-invest from its balance sheet alongside its funds.

In addition to equity, any potential deals will be leveraged with debt from banks or debt funds.

In a private transaction, you can create a spark with the entrepreneur. But you never know when they will decide to take the next step. It can happen anywhere between the day of the first meeting and up to 10 years later" – Giovanni Revoltella, DBAG Italia

DBAG Italia's investments will initially focus on B2B industrial and industrial services businesses. In the medium term, the focus will expand to include DBAG's other core sectors, which include IT services, software and healthcare, Revoltella said. The firm will also seek to invest in companies at the intersection of industrials and software.

The GP has been active in the broadband and fibre connectivity sector in Germany via its Expansion strategy, which takes both majority and minority stakes in companies with enterprise values of up to EUR 75m, generally making investments of EUR 10m-30m. In the mid-term, DBAG could use the expertise developed by the Expansion team to source opportunities in Italy, Revoltella told Unquote. However, the GP's initial plan is to make investments via DBAG VIII.

DBAG is open to M&A advisory approaches and partnerships as it establishes itself in the Italian market, and intends to work in partnership with local advisers, Revoltella said.

"We will look at both private buyout and structured auction processes," Revoltella told Unquote. "In a private transaction, you can create a spark with the entrepreneur. But you never know when they will decide to take the next step. It can happen anywhere between the day of the first meeting and up to 10 years later, so we will work on a few deals in parallel."

Family affair
DBAG intends to back family-owned businesses as they emerge from the worst of the Covid-19 pandemic, according to Revoltella. "Now is the time for entrepreneurs to find a partner so that they can continue to do the things that they like the most, such as product technology development, while we as the financial partner can take care of organising the company in a bullet-proof way in terms of talent and market position for the next few years."

In addition to making new direct investments, the GP also sees opportunities for add-ons and consolidation plays in the Italian market. "There are not specific sectors where we are planning to consolidate, but there would certainly be support from Milan for those that do offer consolidation opportunities," Revoltella said. "We will also look to create Italo-German European champions by combining two or more companies."

Following the two deals that the GP has made over the past year, DBAG Italia expects to hire two more investment professionals in its Milan office before the end of 2021. The team will expand further as the firm's Italian portfolio grows, Revoltella said.

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• Deutsche Beteiligungs AG