strategic seminar for the anoia textile cluster
TRANSCRIPT
Criteria to invest in Fashion Companies
STRATEGIC SEMINAR FOR THE ANOIA TEXTILE CLUSTER
“Searching for blue oceans”
Agenda
1. Camelot
2. Market outlook
3. Investment criteria
4. Case history
2
Speaker, Salvatore MAJORANA
Shareholder and Managing Director of Camelot since 2006, Salvatore has actively contributed to
create and establish the Made in Italy private equity boutique. While in the role, the company
finalized 6 acquisition in the luxury goods sector; developed the offices of Milan, Turin and Padua,
reaching a maximum headcount of 23 professionals. About 20 new private investors have been
involved, for an overall equity of € 12M and debt of €19M. Company performances doubled every
year.
Prior to join Camelot, Salvatore held a managerial position AT Kearney and EDS Consulting, was
senior consultant for Deloitte, Investment manager for the Italian private equity fund KIWI, and
member of the Strategic Planning division of Telecom Italia Lab.
Salvatore holds and Engineering degree cum laude from Università di Catania (Italy) and an MBA
from INSEAD (France and Singapore). He published his research work from University of California
at Berkeley. He speaks English and some French beside Italian.
38 years old, Salvatore is married with three children.
3
Camelot: focus on Small Medium Enterprises
Camelot is a Business Development Company, founded in 2005 with the goal of aggregating “Club
Deals” on small and mid cap firms operating in luxury goods and lifestyle sectors (Fashion, Food,
Design).
Investments are made at various stages of company development: growth financing, LBO/MBO,
turnaround, generational change.
Deal size is in the range of €5M to €15M with use of debt leverage. Aggregation of more targets is
a value creating driver for a way‐out strategy.
Camelot’s goal is to support the target companies in developing their market reach and internal
organization, eventually by creating clusters of companies in the group, in order to benefit from
the value created in a way‐out process.
4
Camelot and Partners Geographical Presence in Italy
Camelot has a its headquarters in Milan and several offices in the main Italian economic districts.
Local offices are developed with local minority shareholders, who contribute at creating a tight connection with entrepreneurs and investors across Italy.
Especially in Italy, the local presence is crucial to build relationship with SME’s.
The presence over the territory allows to achieve the following competitive advantages:
More Reach: possibility to screen the investment projects before the other Private Equity firms.
Cleaner Pipeline (information filtering): optimization of the business origination process thanks to local partners who help select deals on their own territory.
Roma
MilanoTorino Padova
Messina
5
Gulf Finance & Investment Co.
Located in the heart of Beirut, Gulf Finance and Investment Co. (“GFIC”), is an holding company
active in the area of finance, insurance and other diversified business. Part of the group is a
Lebanese financial institution regulated by the Central Bank of Lebanon (“CBL”) under license No.
13 of the CBL list of financial institutions.
From its establishment in 1999, GFIC has been providing premium‐grade financial services with a
high level of transparency to its clients. Having a dedicated team of professionals and many
correspondent relationships with financial institutions in Europe and the United States, GFIC
prides itself at playing the role of asset manager and in‐house funding provider of choice.
GFIC offers a full array of investment banking services sought by large corporations. It is an active
player in international capital markets and provides securities and currency brokerage, portfolio
management and in‐house fund management. Retaining a large portfolio of local, regional and
international investors, GFIC enjoys a presence (affiliated offices) in both the United Kingdom and
Malta. Our clients include high net‐worth individuals, corporations and quasi‐governmental
institutions in the MENA region
6
The International Network
7
777 Brickell Ave, Suite 1150 Miami, FL (USA)
650 Fifth Avenue , 17th floorNew York, NY (USA)
Av. Carlos Gomes, 466/602Porto Alegre (BRAZIL)
Colonos Plaza Sur Victoria Ocampo 360, 3rd floorBuenos Aires (ARGENTINA)
AV. Vitacuran° 2939, piso 10Las Condes, Santiago (CHILE)
Yanabih Street‐ SwaifiaP.O.Box 26332 (AMMAN)
3rd Circle Road Al‐Swaidi Bldg, 2nd floor P.O.Box 7678DOHA, (QATAR)
Beirut Central District, Foch Str., Baydoun Bldg.Riad El‐Solh, Beirut (LEBANON)
Kuwait Real Estate Bldg.7th floor, Suite 717, Kuwait CitySAFAT, (KUWAIT)
60 Street, Malaz AreaAl‐Ikariah Al‐Kadima Bldg, Room 508(RIYADH)
Also present in:UNITED ARAB EMIRATES, BAHRAIN, SYRIA, REPUBLIC OF YEMEN
Track recordwww.sutormantellassi.comSutor Mantellassi (2006) ‐
Buyout and turnaround of an historical brand of top quality Italian shoe makers tradition.
Tanino Crisci (2007) ‐ www.taninocrisci.comBuyout of an historical brand of top quality Italian shoes, with flagships shops in primary locations around the world.
8
Cyrus Company ‐ www.cyruscompany.it
Villa Paradiso ‐ www.golfvillaparadiso.com
Advisory on structuring the acquisition of a golf club related to a significant luxury real estate development.
Advisory on buy‐side to gain majority of a high quality furniture producer.A
DVISORY
PRIVATE
EQUITY
Start up aimed to design and distribute high quality mosaic.
Buyout of a top quality jersey producer, selected by top tier fashion brands, such as Prada, Gucci, Chanel and others.
iLuxe (2007) ‐ www.i‐luxemosaic.com
Unomaglia (2008)
Acquisition of majority shares of top quality eyewear and sunglasses producer, licensee of Vecellio (2008)
www.zagato.itZagato –
Support in identifying an equity partner to develop company business plan and footprint. Valuation and business planning.
Boscolo Hotels
Advisory on performance improvement of the group and business plan activity;re ‐ valuation of real estate assets.
MasterCard ‐ www.mastercardadvisors.com
Business process re‐engineering and new product definition for leading Italian commercial banks.
Dhd design hotel development
Study of international business model and set up activities to implement business plan .
Agenda
1. Camelot
2. Market outlook
3. Investment criteria
4. Case history
9
Financial crisis and credit crunch
The financial crisis of 2007–2009 has been called the worst financial crisis since the one related to
the Great Depression by leading economists, and it contributed to the failure of key businesses,
declines in consumer wealth estimated in the trillions of U.S. dollars, substantial financial
commitments incurred by governments, and a significant decline in economic activity.
Economist Paul Krugman and U.S. Treasury Secretary Timothy Geithner explain the credit crisis via
the implosion of the shadow banking system, which had grown to nearly equal the importance of
the traditional commercial banking sector. Without the ability to obtain investor funds in
exchange for most types of mortgage‐backed securities or asset‐backed commercial paper,
investment banks and other entities in the shadow banking system could not provide funds to
mortgage firms and other corporations. This meant that nearly one‐third of the U.S. lending
mechanism was frozen and continued to be frozen into June 2009.
10
Financial crisis effect on EU Sme’s
The 20 million SMEs in the EU represent 99% of businesses, and are a key driver for economic
growth, innovation, employment and social integration.
Bank lending is the largest source of external SME finance and banks take a dominant position
regarding external loan finance.
Bank loans are used for financing investments, working capital and stock financing. Bank lending
may be secured or unsecured and will depend on the credit rating of an SME. A commercial bank
may be unable to provide finance to a viable SME because of: ‐Lack of a track record; ‐Inadequate
security; ‐Breach of a threshold limit; ‐A credit rating outside an acceptable range".
Starting the second half of 2008, the "collapse" of the financial system caused a huge slow‐down,
or even recession in some Member States, forcing Governments to react by
Supporting the financial system: banks, directly, to help firms, indirectly (did it work???)
Social amortization tools, to prevent massive unemployment
11
Impact on Italian Sme’sItaly: industrial production contracts at slower rates
(seasonally-adjusted index, base 2005=100)
83
88
93
98
103
108
113
2007
mar
may ju
l
sep
nov
2008
mar
may ju
l
sep
nov
2009
mar
Source: CSC calculations and estimates based on ISTAT data
-6,0
-4,0
-2,0
0,0
2,0
4,0
% change in economy, right hand scale
Industrial production
3-term moving average (m-o-m % changes, righthand scale)
The use of the wage supplementation fund is nearing the peaks of 1993. In terms of full‐time equivalent employees, the total number of authorised hours covered by the fund averaged 1.21% (annualized) of total labour force between January and March. The peak was 1.4% in 1993 and 2.1% in 1984. In March 2009 alone it stood, however, at 1.48%. Since it refers to authorisedhours, in some cases, the indicator reports with at least one month’s delay the effective benefit claim
Greater utilization of the wage supplementation fund(Italy, total authorised hours covered by the WSF in terms of
full-time equivalent workers as % of total labour force)
0.30
0.60
0.90
1.20
1.50
1.80
2.10
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Seasonally-adjusted data, corrected for the number of working days and annualised.Source: CSC calculations and estimates based on INPS and ISTAT data.
Jan.-March average
March
The pace of the recession is slowing down. The CSD (Confindustria Research Centre) estimates a recovery of 1.5% in industrial production in April following a contraction of 3.2% in March. It estimates an overall contraction of 4.2% for 2009 – practically half the contraction of 8.5% recorded for 2008.
12
New Operating Conditions
Until early 2008, in a context of a liquid market, all private equity operators were focused on the
medium/large deals (> €20M in equity plus debt) and Camelot held a distinguished market
position, being (almost) alone in a largely unexplored market. In this context, it grew experience
working as a bridge between firms and equity.
Starting September 2008, the change in the market had a strong impact on Camelot reference
market. In fact, due to the lack of liquidity
1. many operators were urged to pursue smaller deals, and Camelot’s arena became more
crowded
2. equity investors disappeared for a few months, awaiting a clearer horizon
3. and in the meanwhile, the demand for fresh equity from SME’s grew.
In the new working environment, Camelot experience and local connection to SME’s market
is a competitive advantage on other equity operators, making the firm the ideal gateway for
national and international investors to effectively reach the target market !!!
In the new working environment, Camelot experience and local connection to SME’s market
is a competitive advantage on other equity operators, making the firm the ideal gateway for
national and international investors to effectively reach the target market !!!
13
Reference Market: Small and Medium Enterprises
The SME’s market in Italy consists of more than 100.000 small and medium sized companies with
more than 10 employees and turnover between 2 and 30 million euros*.
Among Italian SME’s we can find a unique patrimony of traditions and innovation, style and
technology, which represents a highly interconnected economic network, largely limited within
national or regional borders.
The main issues SME’s have to face
• Highly entrepreneurial, scarcely managerial organization: powerful in a start‐up and early
growth phase, but a potential limit to a structured growth;
• Financial support: growth is often capped by a limitation on funds and a difficult
relationship with the banking system
Italian SME’s have a strong local character and often an enormous unexpressed economic
potential. In order to identify and to reach them, a regional network and a local presence is a
powerful asset.
*Source: AIFI, KPMG, Confindustria, Ministero delle politiche economiche.
14
Scenario Evolution
After 12 months of contraction in GDP, Confindustria
forecasts an inversion of sign in growth indicators starting
second semester 2009 (Centro Studi Confindustria – May 2009).
Stock markets have begun growing again, anticipating real
market.
Bank interests are at an historical low level.
Liquidity has gained value while EBITDA multiples have
decreased.
We face an optimal conjuncture for Private Equity: low prices today and a growing curve ahead!!
15
Global financial crisis: Opportunity or a Threat?
In the present scenario, PE operators must cope with global crisis and its effects:
PE
INVESTO
RS
‐Lack of trust o
n the market ‐
UNDERPERFORMINGPORTOFOLIO
BIGOPPORTUNITIES
Restructuring;
Capital increase;
Low multiples transactions;
Good assets still on the market, but with huge leverage (restructuring).
MANAGE
DEVELOP
16
The market and relevant findings (source PEM)
In summary, 127 private equity deals were included in the study for 2008. This represent a 9%
growth in comparison to the 117 deals in 2007. Since 2000, when there were 68 closed deals, the
Italian investment market has been increasing at a compound annual growth rate (CAGR) of 8%.
Although 2008 represents a peak in investments, the year seems to have been partly impacted by
the current financial crisis.
In terms of distribution, the analysis shows also for 2008 a steady state focus on traditional
sectors such as consumer goods accounting for 23% of the operations.
Relating to the target company size (with reference to sales), some slight changes were identified
in 2008, compare to the prior year. The deals mainly concentrated on target companies with a
turnover of less than 30 ml. (40% of the sample in 2008).
17
2008 Transaction in Textile and apparel industry (Source PEM)
Target company Lead Investor Invest amount (€mln)
Acquired Stake
Investment stage
Sector 1 level Sector 2 level
Gruppo Luigi Botto Management & Capitali
n.d. 92% Turnaround Consumer goods Textile mil products manufacturing
ITP Tessitura imperiali
Natexis‐Cape Sgr 8,3 70% Buy out Consumer goods Textile mil products manufacturing
Light Force (Twin Set)
Dgpa SGR 10,0 32% Expansion Consumer goods Textile mil products manufacturing
Pantofola d’oro Mercurio Capital n.d. n.d. Expansion Consumer goods Textile mil products manufacturing
Rpb holding IP Investimenti e Partecipazioni
16,0 43% Expansion Consumer goods Textile mil products manufacturing
Schmid Siparex Italia n.d. 50% Buy Out Industrial products Textile mil products manufacturing
Uno Maglia Camelot 5,0 100% Buy Out Consumer goods Textile mil products manufacturing
Allegri Orlando Italy n.d. 40% Turnaround Consumer goods Apparel and other finished products from fabrics and similar materials
Jeckerson Stirling Saqure Capital Partners
n.d. 100% Buy Out Consumer goods Apparel and other finished products from fabrics and similar materials
Kickoff (Sundek) Dgpa SGR 11,1 60% Buy Out Consumer goods Apparel and other finished products from fabrics and similar materials
Moncler Carlyle group n.d. 89% Buy Out Consumer goods Apparel and other finished products from fabrics and similar materials
18
Agenda
1. Camelot
2. Market outlook
3. Investment criteria
4. Case history
19
Le logiche di investimento di un operatore del PE
L’operatore di Private Equity interviene sulla base di progetti imprenditoriali e di idee di business meritevoli supportate da un management capace ed affidabile.
La presenza di un socio con la visibilità e la forza finanziaria propri di un operatore di Private Equity, è spesso origine di maggior forza contrattualenei confronti di clienti, fornitori e delle amministrazioni pubbliche.
Oltre ad un aiuto finanziario, il soggetto imprenditoriale gode anche di un contributo di know‐how manageriale, esperienza e contatti, che l’operatore di Private Equity mette a disposizione dell’impresa per il raggiungimento dei suoi obiettivi di sviluppo.
Societàtarget
InvestitoreL’investitore realizza in un orizzonte temporale di medio lungo termine una plusvalenza derivante dalla valorizzazione dell’impresa oggetto dell’investimento
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Tipologie di intervento
Fase di avvio. Supporto alla nascita di una nuova iniziativa imprenditoriale, sia essa ancora nella fase embrionale o nelle primissime fasi di avvio. Non si tratta solo di un mero contributo in termini di capitali, ma di un aiuto nella definizione della formula imprenditoriale, di competenze aziendale e manageriali.
Seed/Start‐up Seed/Start‐up
ExpansionFinancing ExpansionFinancing
Leveraged/Management
Buyout
Leveraged/Management
Buyout
Turnaround Turnaround Risanamento. Operazioni di turnaround: ingresso in imprese in crisi finanziaria determinata da errate decisioni gestionali o da fasi congiunturali del mercato.
Maturità. Operazioni di Management Buyout/ Leveraged Buyout: finanziamento di società che hanno già concluso il proprio processo di crescita, con flussi di cassa stabili e spazio per ricorrere al debito, al fine di favorire l’ingresso dei dirigenti nella compagine sociale o di risolvere tipici problemi di successione delle imprese familiari italiane.
Fase di sviluppo. Operazioni di supporto allo sviluppo di una impresa che ha già implementato la prima fase del suo processo di crescita ed allo stesso tempo detiene spazio per sviluppare il proprio business. Il contributo dell’investitore nel capitale di rischio è prevalentemente di natura finanziaria anche se non è raro un intervento consulenziale
21
Private equity investments in Italy
Private equity transactions in Italian fashion and luxury goods companies have grown significantly
over the past seven years mainly because of the opportunity for higher returns and lucrative
transaction multiples.
Many of the Italian fashion and luxury goods companies are "family run" businesses, often
financially weak and lacking in managerial sophistication, thereby creating fertile ground for
outside professional investors.
Investors, in turn, have been providing the significant financial resources and managerial
expertise necessary to support the growth and development of these companies. This market has
such significant potential that specialized funds have been created to operate solely in this
segment.
22
Our approach
Operations are carefully selected according to two main guidelines:
1.Excellence in production, brand and high quality goods & services
2.Small/medium dimensions and room to create value
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1
2
Brand Equity (1/2)
One of the most valuable assets in the Made in Italy sector is the brand itself. Most Italian
companies base their strategies on the emotional and intrinsic value of their brands, as a way of
communicating “QUALITY” and “STYLE”.
Literature has proven, through many empirical research projects that there is a strong
relationship between a company’s investment in intangibles and the value of its performances.
Being able to build and manage the brand provides the firm a powerful accelerator of the
business and a multiplier of company valuation.
24
Brand Equity (2/2)
One of the most respected authors in this field , D.A. Aaker, believes that a brand often provides
the primary point of differentiation between the different competitive offerings and as such it can
be critical to the success of the company;
Building a strong brand is one of the most important goals of product and brand management.
Strong brands result in high revenues streams, on a short and long terms basis, therefore the
most important objective in brand management is to build brands that last for decades and in
some cases centuries and that can be leveraged in different product categories and markets.
Brand equity finds its state of mind when it creates value for the company that owns it and for the
consumer.
ONE EXAMPLE: ZAGATO Cars
25
ZAGATOsince 1919
HISTORY
Alfa Romeo 1750 (1927) Lancia Aprilia Sport (1937) Maserati Panoramica (1948) Aston Martin DB4 Z (1959)
Lancia Flaminia Sport(1965) Ferrari NART 330 (1971) Alfa Romeo SZ (1989) Lamborghini Raptor(1996)
27
Exclusive and limited edition cars designed in agreement with luxury car Manufactures
28
Criteria to invest in fashion companies – firms categories
Firms categories
Aspirational brands Brands with huge potential for growth but that have limited access to financing.
Retailers with well‐developed customer propositions, strong retail brands and well‐defined target markets.
Retailers
Some brands do not lend themselves to internationalization but speak powerfully in a particular market.
Brands with commanding national positions
29
Aspirational Brands
Investments
Investments in "aspirational brands" insist on brands with:
High quality productsClear marketing strategyStrong brand DNAHigh product innovation
High marginsLow price sensitivityOpportunity of product diversificationPotential for geographic and channel expansion
30
Retailers
Investments
Investments in RETAILER insist on product, channel and format innovation, and on the opportunity tochange the rules of the industry.
Offering of "VALUE" (due to economies of scale), differentiating, innovative products.
Attractive and scalable format.
Shift of the contractual power towards distributors.
Leadership position with additional opportunity of concentration in the segment.
Opportunity to create barriers to entry in the distribution segment trough the occupation of free spaces in channels.
31
Brands with commanding national positions
Firm categories
Investments in powerful national brands and luxury and premium products capable of internationalization and innovation, commanding and protecting attractive margins.
there is a strong relationship between a company’s investment in intangibles and the value of its performances;
Brand finds its state of mind when it creates value for the company that owns it and for the consumer.
32
Made in Italy opportunities, from “product” to “project”
Private equity investors should be conscious of challenge when they invest in SME’s:
Key success factorsChallenge
Company under the minimum critical mass
Family transition
Market transition
Investment barriers
Retail chains more selective than in the past
Innovation
Quality
Differentiating
Design emphasis on the consumer
Strategic marketing
33
Criteria to invest in fashion companies – action plans
Action plans
Supporting Growth
by entering new territories, building production capacity or making strategic acquisitions;
to pass the business from one generation to the next, enabling the departure
of a major shareholder or preparing it for a public listing;
Restructuring shareholdings
where owners can unlock the equity they have built up over time by
exchanging a portion of shareholding for cash whilst leaving the option of
remaining a significant shareholder open;
Releasing equity
to pursue market opportunities that might otherwise be unobtainable
because of high levels of borrowing.
Changing the balance equity/debt
34
Agenda
1. Camelot
2. Market outlook
3. Investment criteria
4. Case history
35
Unomaglia, partner of the most important luxury labels.
UNOMAGLIA is a leading Italian supplier in the creation and production of high level clothing for the most important luxury designer labels.
Born in 1987 as a small handicraft business, the experience its four founders had acquired over the years led them to open a research and development office at the beginning of the ’90s and the company started producing on license for Italian and foreign stylists.
By the end of the 90’s UNOMAGLIA specialized in the creation and production of jersey articles and over time became one of the strategic suppliers to the most important international fashion houses.
TODAY
36
KEY NUMBERS KEY CLIENTS
COMPANY Unomaglia S.r.l.
HEADQUARTER Terranova Bracciolini (Arezzo).
ACTIVITY Planning and production of lines of man and woman lines for the most exclusive maisons.
PRODUCTION In base to the sketches of the clients it realizes prototypes, samples and the production, managing diversified productive packets, overlapped in the time, very short time production and high quality of the product.
MANAGERS Bertrand Thiry, CEO selected by Camelot, Simonetta Guelfi, founder and style office responsible.
PEOPLE 43.
QUALITY The company is certified by Certitex since 2001.
COMPANY PROFILE
Headquarters
Style Office
2005 2006 2007 2008 2009e
Sales 6.854 6.185 6.915 6.896 8.407
Ebitda 1.160 1.227 1.571 1.055 1.231 Net Earning 643 623 920 273 783
Shares hold by Camelot 30%
Expected value @ way‐out (2011) 3.619
Expected IRR @ way‐out 78%
Tanino Crisci, timeless style.
TANINO CRISCI was founded in far 1919 from Alfonso Crisci to produce high quality shoes.
Nowadays the shoes produced by the company are considered a great example of elegance an style and they are worn by the most important politicians, stars and entrepreneur in the world.
The product is distributed among an exclusive boutiques chain. The boutiques are located in the most famous fashion street in New York, Tokyo, Milan, Paris, Florence and Rome.
Moreover in Japan Tanino Crisci it is distributed by Itochu corp. a company with a great experience in fashion and distribution.
COMPANY PROFILE TODAY
COMPANY Tanino Crisci S.r.l.
HEADQUARTER Milan.
ACTIVITY the company manufactures and distributes man’s and woman’s shoes and leather accessories with the brand Tanino Crisci.
PRODUCTION The production is entirely carried out by the shoe maker professionals of the company in the manufacturing plant of Casteggio (Pavia).
In this plant the whole manufacturing cycle is covered, from the cutting to the polishing of the shoes. In the same facility operate the main staff functions like purchasing, administration, design, product development, logistic and general management.
PEOPLE 62.
Hand Made, Italian styleFLAGSHIP STORESKEY NUMBERS
2005 2006 2007 2008Sales 5.604 6.208 6.000 7.756 Ebitda 38 (52) (50) 226 Net Earnings (343) (362) (300) (2.616)
NEW YORK795 Madison Avenue
TOKYONamikidori – Ginza 8, 6, 24
OSAKAHilton Plaza – Umeda 1, 8, 16
PARIS40, Rue François 1er
MILANO Via Montenapoleone, 3
FLORENCEVia Tornabuoni 43/45R
ROMEVia Borgognona, 4
37
TAKE AWAYS
When to approach a PE operator?
Need money to finance growth and/or differentiation must accept to share the project!!
Tired to run your company but don’t want to waste the value created? PE is a good way to cash.‐in
Want to restructure the shareholding composition? PE can replace your shareholders, but remember it is a demanding partner!
Finally, if you decide to go for PE, be sure TO USE IT WELL!
They have professionals able to support your company restructuring and reorganization;
Do not hide details, they will come out and this can be a problem. If presented upfront, the process is faster and more efficient;
Don not assume your company is not interesting!!! PE may find scale or scope economies that you do not imagine.
38
Contacts
SALVATORE MAJORANAManaging Director
Via Boito 820121 – Milan, Italy
Ph. +39 02 366 433 00
Fax. +39 02 366 433 60
www.camelotba.com