FSI eyes new fund with near EUR 1bn returned to LPs this year

The GP's second fund is expected to be of similar size to FSI I at EUR 1.4bn and have the same strategy of taking minority positions in Italian mid-market businesses alongside founders and families with a view to back organic and inorganic growth.

The sponsor has typically deployed tickets of EUR 80m-EUR 200m but could upsize this under the new fund as the Italian market matures, Ravanne said. Its investments can help feed capex for say, a new factory, or fund a transformational acquisition.

Plans for FSI II come on the back of four exits – three in 2022 – that had a combined 2.5x money multiple and 33% IRR. FSI I closed in February 2019 at EUR 1.4bn so has returned the near EUR 1bn to LPs in four and a half years.

This year's exits include the sale of its 28% stake in automotive parts manufacturer Adler and its 35% stake in cosmetics packager Lumson back to the founding families, as well as re-investing in Permira's merger of plasma derivatives pharma companies Kedrion and BPL for a partial exit.

"We have a very good set of alternatives for exit," said Ravanne, adding that it prefers to steer clear of secondary and tertiary private equity buyouts and focus on situations where it can sell either the entire business to a strategic buyer or the stake with the attached governance.

"We also generated those returns with no or very little leverage risk," he added. "For our companies, the leverage on entry is around 1x compared to 4.5x for the average LBO. That's what some LPs really like about our business, as it provides private equity returns with less risk and is less exposed to rising interest rates."

Each of the fund's four exits to date, adding in its 2021 sale of Cedacri to ION Group, has had an enterprise value at or over EUR 1bn, which Ravanne says is very large for the Italian market. 

ION Group is the parent company of this news service.

Investments

FSI expects to make two new platform deals in 2023 but is also focused on portfolio value-creation, including executing add-ons both within Italy and across Europe, and providing capex for organic growth. It also wants to stick within its core verticals of IT/digital, fintech and healthcare, which make up over 80% of the portfolio.

"In our focus verticals we proactively identify targets, but in a number of cases our future partners come to us when they already have a growth plan to execute," said Ravanne, pointing out that the founder of IT and digital services player Lynx approached FSI with a pipeline.

"It had EUR 10m EBITDA when we invested in November 2021 and is now already doing EUR 25m with organic growth and three acquisitions."

Equally, on larger transactions, it saw a similar growth spurt at Cedacri by helping to take the company from EUR 40m EBITDA on entry to EUR 100m on exit.

FSI can also take majority ownership, having acquired a 60% stake in the digital payments arm of Iccrea Banca earlier this year. 

The GP remains loyal to its home market of Italy for platform investments, as it sees a growing scope for growth investments against wider competition among buyout funds.

Despite a choppy year in M&A markets, the aggregated deal value of Italian buyouts was up 38% to EUR 27.7bn with 189 deals, with BC Partners and Bain Capital's EUR 3bn co-investment in paper manufacturer Fedrigoni taking top spot.

The Italian market is also home to many family-owned businesses that are slowly thawing to the idea of bringing private capital into their companies.

"We see more and more entrepreneurs looking for equity," said Ravanne. "It's challenging to raise debt for buyouts and any growth project. That's an opportunity for us."

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