day-to-day work in an international pe fundstream.sdabocconi.it/direttaweb/talks/20160305 day to day...
TRANSCRIPT
1
Day-to-day work in an international PE fund
Dott. Raffaele Legnani
Managing Director
H.I.G. Capital
Università Commerciale Luigi Bocconi, Tuesday 3rd May 2016
2
The speaker
Raffaele Legnani
•Graduated with honors in Finance and Business Administration from Bocconi
University in Milan, after a term at the Wharton School of the University of
Pennsylvania
•Worked in investment banking for Goldman Sachs in London
• Investment Professional / Partner of Special Situations private equity funds: the US based Wexford
Management and the London based Stellican
•Directly invested in a significant number of successful buyout and restructuring transactions serving as
operating board member for several portfolio companies
•Founding partner of Atlantis Partners, private equity investor and managing company of the first
independent Turnaround and Special Situation fund dedicated to mid sized companies in Italy
•Managing Director of H.I.G. Capital, heading up the Italian office
•20+ years of experience in private equity
3
Snapshots on the PE role in Italy
H.I.G.: description, philosophy and activity
Everyday life in a PE fund and examples from H.I.G.
Q&A
Today’s agenda
4
1. Investments valued at historical cost
Source: AIFI, AFIC, ASCRI, BVCA, BVK
Some numbers of PE activity in Italy
PE is playing an important role in the
Italian M&A arena …
3,5
7,1
8,7
5,9
3,5
Italy UK Germany France Spain
… but still at lower levels compared to
the main European countries
125 PE funds, of which <15 international
with offices in Italy
3,8 billion Euro invested on average in
the last 3 years in Italy (4,6B€ in 2015)
~1.200 companies in PE fund portfolios…
…for a total invested amount of 24,41
billion Euro…
…revenues of over 90 billion Euro…
…and more than 400.000 employees
Invested capital, € bn (2014)
#
investments 728 1,650 1,396 248 580
5
PE funds in Italy largely invest in buy-out and expansion deals
EV
t
VENTURE CAPITAL
Capital for R&D,
product development,
beginning of
production and distribution
of start-up companies
GROWTH/EXPANSION
Expansion of
production capacity,
distribution, M&A etc.)
REPLACEMENT/BUYOUT
Majority investments
through leverage finance
TURNAROUND
Financial and managerial
support to companies
facing restructuring and
complex situations
2% (36%)
7% (24%)
89% (39%)
1% (1%)
% of PE investments in Italy in 2015 value (number)
6
Snapshots on the PE role in Italy
H.I.G.: description, philosophy and activity
Everyday life in a PE fund and examples from H.I.G.
Q&A
Today’s agenda
7
>19 billion dollars under management
>200 investments since foundation in 1993 globally
80 PE investments and add-ons realized since 2008 in Europe
>100 portfolio companies with …
… >30 billion dollars of cumulative sales
>300 experienced investment professionals
Based in Miami with offices in Atlanta, Boston, Chicago, Dallas, New York and San Francisco
in the US, and Rio de Janeiro in Brazil; in Europe offices in Hamburg, London, Madrid, Milan and Paris
Funds active in Europe
A family of funds with over 19 billion dollars under management
H.I.G. Capital: leading global investment firm focused on medium-sized companies
Private Equity
H.I.G. Capital
Credit
Opportunities Direct Lending Real Estate Venture Capital
8
H.I.G. in Europe has a broad investment mandate
Revenues between €50m and €500m
EBITDA > €10m
Equity investment between €10m and €50m
Mainly majority investments but also minorities
Possibility to invest in all industries
Complex deal structures, including carve outs and asset deals, also from bankruptcy procedures
Middle Market
Flexibility
Established
businesses (no Venture Capital)
Organic growth and acquisitions
Management buy-out
Management buy-in
Orphan companies
Consolidation projects
Underperforming businesses
Financial restructuring
Corporate carve-out
Complex situations
ST. GILGEN
INTERNATIONAL SCHOOL
AUSTRIA
Bezier
Growth / Expansion capital
H.I.G. Deals
in Europe
Replacement/ Buyouts Turnaround / Special Situations
9
Snapshots on the PE role in Italy
H.I.G.: description, philosophy and activity
Everyday life in a PE fund and examples from H.I.G.
Q&A
Today’s agenda
10
What do we do in an international PE?
1. Fundraising 2. Origination 3. Screening
4. Deal
structuring and
execution
5. Portfolio
management 6. Exit
11
• International PE funds look for large institutional
investors (“at the top of the food chain”) such as:
• universities
• endowments
• pension funds
• family offices
• insurance companies
with long term investment horizon.
• Fundraising activity does not vanish at the closing of a
PE fund but it’s rather a continuous communication
activity with investors to create long lasting
relationships and it is targeted to broaden the range of
products offered by the fund
• Large international funds manage their fundraising and
investor relationship activities centrally with dedicated
teams
• H.I.G. has specific teams dedicated to investor
relationship based in London and Miami; this allows
investment professionals to focus on…
1. Fundraising activity and relationship with investors
Fundraising
… what we love the most:
investing!
In an international PE fund, fundraising is a
continuous activity… …with specific team dedicated to this function
12
Deal origination Marketing
2. Origination: scouting of new operations
Origination
Network Proactive searches
• Mapping of the 3.500 Italian
companies relevant for size
• Investigation on potential
triggers for opportunity arising
(plans to grow, succession
issues, financial distress..)
• Proactive contacts through
intermediaries or company’s
advisors or banks
• More than 150 marketing meetings
to present H.I.G. in Italy per year
• Constant presence on media
• Newsletter with updates on H.I.G.
global investment activity
• Several initiatives (breakfast
meetings, marketing corporate
events, road show by provinces,
presence at industry exhibitions) to
enlarge the network and increase
deal flow
• H.I.G. originates deals in Italy from a
network of 3.000 Italian contacts (of which
450 classified and periodically contacted)
• H.I.G. international network (foreign
colleagues) generates 15% of total
opportunities in Italy (% much higher for
add-on opportunities abroad)
• One professional of H.I.G. Italian team is
fully dedicated to coordinate this activity
Investment
bankers
Lawyers
M&A advisors
Local
chartered
accountantsManagers
Foreign
Colleagues !
The whole activity generates in Italy 450 investment
opportunities / year to be screened
13
First check of minimal
requirements
• First go/no go analysis on
target company’s
requirements such as:
• company size
• deal size
• business or geographies
restricted
Business & financial analysis
Business and market analysis
• Comprehension of company’s market and product dynamics through
internal analysis, expert interviews and brainstorming with colleagues
Identification of avenues of value creation
• H.I.G. internal organization by verticals greatly facilitates a quick
understanding of main business dynamics and opportunities on
European and global markets, leveraging on internal industry
competence and contacts of the H.I.G. global teams
Financial analysis
• Analysis of company’s historical financials and business plan
• Preparation of LBO model and preliminary hypothesis on deal returns
3. Opportunity screening: focus on business value creation in targets
Screening
TMT Healthcare Natural
resources
Business
services Industrial
16 professionals
(6 Europe, 10 US)
>30 investments
>16 professionals
(6 Europe, 10 US)
>50 investments
12 professionals
(7 Europe, 5 US)
>30 investments
16 professionals
(3 Europe, 13 US)
>40 investments
9 professionals
(4 Europe, 5 US)
>20 investments
Consumer &
retail
>15 professionals
(6 Europe, 9 US)
>30 investments
Deal context analysis
• We prefer proprietary deals
(we generally avoid
overcrowded sale processes
and auctions)
• We prefer primary deals (not
PE exiting)
• Strong relationships with
management, seller or
intermediates help
• Looking for strong angle in
terms of H.I.G. credentials in
the industry, possibility to
bring add-on opportunities or
experienced management
Out of 450 opportunities, 70% passes the first check
Nearly 50% of the “surviving” dossiers is rejected after a first desktop analysis
With the aim of finding
opportunities in which
we can create corporate
and shareholders value
14
Pricing
• Price must be consistent with
the risk associated to the
growth plan
• H.I.G. Italy presents roughly
30 NBOs per year
Financing
• Financing is provided by
local or international banks
depending on size and it is
negotiated by local teams
Due diligence
• Involvement of international
advisory firms but also local
specialists, industry or
functional experts
Structuring and SPA
• Maximum flexibility in
structuring to meet sellers’
and target company needs
• In H.I.G. we also like
complex structures: for
instance we completed 16
carve-outs in the last 7 years
4. Deal structuring and execution
Deal execution
We target 4/8 LOI and formal due diligence processes to
execute 2/3 deals per year
15
5. Portfolio management: how do we create value?
Prtf management
Value creation levers
Industrial levers
(EBITDA growth)
Financial lever
(@ entry)
Marginality
growth
Optimal deal
structure (D/E)
Revenues
growth
Financial lever
(@ exit)
Multiple
expansion
Deal structuring and
execution Portfolio management Exit
Main focus area to create value
16
Internationalization External growth Operational excellence
5. In H.I.G. we focus on 3 way to create value
Industrial levers
(EBITDA growth)
Marginality
growth
Revenues
growth
• H.I.G. believes that being
international is key for a company
to be competitive today
• We have an extensive network
worldwide which support our
portfolio companies to growth
outside Italy
13
35
80%
Offices in 7 countries:
USA, Brazil, UK,
Germany, France,
Spain, Italy
Countries where we
operates through our
portfolio companies
of our portfolio
companies saw their
export growing more
than 40% during
holding period
• H.I.G. strongly supports a
buy&build strategy, being able to
structure, evaluate and complete
acquisitions of add-on
opportunities in Italy and abroad
1.4B$
36+34
3,200
Our 36 portfolio
companies completed
34 add-on acquisitions
Companies
met/analyzed each
year in Europe that
could be add-on
opportunities
Size of the European
funds for the Private
Equity activity; ability
to provide portfolio
companies with
additional capital
• H.I.G. targets the operational
excellence of its portfolio
companies:
Leveraging on
competencies and
expertise of H.I.G.
Investment Professionals,
all with a deep operating,
consulting, industry and
work-out experience
Reinforcing the
management team,
when needed, thanks to
a network of approx. 350
managers in Italy and
3,500 managers abroad
Through the hands-on
approach of HIG
professionals, granted by
a longer holding period
(from 5 to 8 years)
One size does not fit all!
Each investment requires different levers
Prtf management
17
Shareholders’ role Management team’s role
5. Who does what to create value?
Guide Execute &
propose
Support &
incentivize
Share
Facilitate Communicate
• Select Top Management team
• Assess and validate long term
strategic guidelines
• Support implementation of the
strategic plan
• Motivate and inspire managers to
undertake activities / processes /
operations that aim at value
creation (i.e. M&A)
• Facilitate the development of the
company providing access to
skills, competences,
professionals’ network and
financial resources
• Implement strategic plan in
autonomy
• Propose long-term strategic
guidelines to shareholders
• Potential opportunities as well as
risks connected to company’s
operations
• Keep shareholders up to date on
company’s milestones and
involve them on the development
of the identified growth plans
Prtf management
In every deal is key to align the objectives of the shareholders
and management in order to drive value creation
18
6. Exit: evaluate different options to maximize value
Exit
IPO
Trade- sale
Secondary buy-out
• Possible higher valuation
• Great visibility for management
• Management or minority shareholders
can gain control after listing
• Partial exit
• Regulation / need of disclosure
• Subject to equity market conditions
• Full exit
• Higher valuation (possibility to partially
include synergies in company
valuation)
• Confidentiality issues during due
diligence process
• Management may see its role at
risk
• Full exit
• Speed of execution
• Full understanding of bidder’s
rationale
• No valuation benefit from synergies
• Price depressed by high targeted
returns of bidders
19
Snapshots on the PE role in Italy
H.I.G.: description, philosophy and activity
Everyday life in a PE fund and examples from H.I.G.
Q&A
Today’s agenda