Deal in Focus: Quadrivio & Pambianco acquires majority stake in public COVER50

Co-founder and CEO at Quadrivio Group, Walter Ricciotti, told Real Deals that the transaction is the final deal for its €300m Made in Italy Fund, which launched in January 2018.

Quadrivio & Pambianco has agreed to acquire a majority stake in the listed company COVER50 – whose shares have been traded on the Euronext Growth Milan since 2015 – through its €300m Made in Italy Fund, representing the 11th and final transaction for the vehicle, which launched in January 2018.

The agreement stipulates the terms for the purchase of 3,271,900 shares in COVER50 at €13.50 per share, through a special-purpose vehicle “indirectly controlled” by Made in Italy Fund’s portfolio holding company, the Fine Sun industrial group.

This total is equal to 74.4% of COVER50’s capital – or €44,170,650 – and stands as the entire stake held by Fhold, the holding company for a family of entrepreneurs.

Quadrivio will fund the buyout through equity and a medium-term bank loan from a pending debt provider, as the GP currently sifts through proposals.

Founded in 1968 and headquartered in Turin, COVER50 is an Italian business trading under the PT Torino brand in the apparel sector and the “high-end” men's and women's trousers segment, sold under the PT Torino and PT Torino Denim labels. According to the company's preliminary 2022 data, the total revenue figure for the year was €30.1m, up by 23.8% from the previous year (€24.3m). About 43% of PT Torino's turnover was generated in Italy, while the remaining 57% was contributed by foreign markets, with Japan and the US accounting for the highest portions.

COVER50’s Ebitda margin is equal to 21.8% of its revenues, which corresponds to €6.6m, an increase of 75.7% compared to 31 December 2021, while its net financial position is positive and equal to €21.8m, compared to €19.2m at 31 December 2021.

Fhold will reinvest in COVER50 for an amount equal to 20% of its capital on equal conditions with Fine Sun through its special-purpose vehicle. The transaction is expected to close in April.

Following this, the mandatory public offering for the remaining 25.6% of capital will be set at the same price of €13.50 per share, which includes a premium of 23% and 33% relative to the weighted average of the official share price of the last six and 12 months, respectively. Any dividends, profits or reserves to be distributed will be deducted from the €13.50 share price.

To delist COVER50 shares from the stock exchange, specific conditions need to be met, and one of these conditions is the inclusion of provisions for sell-out and squeeze-out situations in the COVER50 statute.

Speaking to Real Deals, co-founder and CEO at Quadrivio Group, Walter Ricciotti, said the GP first began discussions with COVER50 at the end of 2019. Disrupted by Covid-19, the firm resumed negotiations in 2022, before getting exclusivity, running due diligence and finally signing the deal.

Ricciotti shed further light on the buying process, which was made slightly more challenging by COVER50’s public status. Despite signing a “very thick” NDA, the listed company was unable to provide the level of data that a private company could, slowing due diligence efforts. Ricciotti added: “It's a bit more complex, because you need to be disciplined with confidentiality. We had to be even more secretive than usual during the negotiations. Any news, any leakage could be price sensitive, and we didn't want the price to go to the stars before announcing the deal.”

Despite the technicalities and Quadrivio’s first delisting in more than 10 years, the deal had in the M&A negotiations many similarities with private company buyouts. Ricciotti mused: “Sometimes it's better to be public, sometimes it’s better to be private. In this case, we think that it's better to be private, to capture all of the synergies with the other portfolio companies that we have in the same space.”

Five other companies belong to Made in Italy Fund’s Fine Sun group: 120% Lino, an Italian producer of linen and natural-fibre clothing bought four years ago; Rosantica, a brand specialised in making gem bags and precious accessories; Dondup, a firm manufacturing denim garments that was bought from L Catterton in 2021; and Autry and Ghoud, which are primarily sneaker companies.

Ricciotti stated that the companies are kept separate as each has its own bespoke minority shareholders. For instance, the founder of 120% Lino still owns 30% of the company. The investor also does not expect the Fine Sun group to be sold together; eventually, when the companies are sold, they will be sold separately.

By putting the companies under the same umbrella, the PE firm said it can optimise the commercial and organisational synergies that will emerge between them, while still respecting the individual identity of each. While in different sectors, each company is positioned in the affordable luxury space. In many cases, they sell through the same wholesalers and to the same retailers. Ricciotti notes that the six companies also benefit from “top” managers at the Fine Sun level who provide support to the businesses.

Despite the war in Ukraine, inflation and high interest rates, Ricciotti believes the affordable luxury market will remain “very healthy”. On its investment potential, he said: “There are not many players in the mid-market space that invest in that space, so it's not as competitive as other sectors.”

All of the investments from the Made In Italy Fund have been in the affordable luxury market, which has products in the “medium-high” pricing range. “It’s not a pure luxury – we’re not competing against Hermes,” Ricciotti clarifies. The investor stated that many companies in the space achieved “very good” financial results in 2022 and the first months of 2023. Shining a light on the firm’s investment preference, Ricciotti said: “We like to invest in companies which are very much differentiated in terms of geographical sites; we don't like companies which only sell to one or two countries.”

One rationale for the acquisition of COVER50 was to gain synergies with Dondup – pairing two players in the high-end trousers sector that will now both be run by Dondup’s CEO. “We think that PT Torino is quite complementary to Dondup, because they have a slightly different positioning. PT’s customer base is 90% male, whereas Dondup's is 50-50. Aside from Italy, PT is very strong in the US and Japan, while Dondup is very strong in the Nordics, Germany and China. That’s the thinking behind putting the two brands under the same umbrella,” explained Ricciotti.

The GP noted plenty of growth potential, with plans to step up PT Torino’s international presence, as well as bolster its digital and retail channels. “Today, PT Torino only sells wholesale. They're very good retailers but the company does not directly manage its stores, so there’s a lot more to be done on direct commerce,” highlighted Ricciotti.

With some leftover dry power, the Made In Italy Fund may use it to fund bolt-ons. “We have operated in the affordable luxury market for over 25 years, so we know most of the companies in this space, especially in the mid-market,” said Ricciotti. While keeping eyes on the market, the investor confirmed that the GP is not currently considering any acquisitions in the “short term”.

Edoardo Fassino, at the helm at Fhold alongside Pierangelo Fassino, will still play an “important operative role”, while also remaining a member of COVER50’s board. Ricciotti said he may join the board, next On exits, Italian financial newspapers have suggested that Autry and Ghoud will be sold together this year, depending on buyer preferences. In the firm’s 25 years of history, its holding period is about four years on average.to COVER50’s founder and a handful of Quadrivio’s professionals.

The GP confirmed that the successor to its Made In Italy Fund, Lifestyle Fund 2, has just been incorporated, with a target size of €500m and a first close expected in May this year. While the Made In Italy Fund only invested in Italian companies, the new fund will seek to invest in additional geographies, including France, Spain and the UK.

Quadrivio & Pambianco was advised on the COVER50 deal by Banca Mediolanum Investment Banking (corporate finance) and Pedersoli Studio Legale (legal), with PwC providing financial due diligence and tax advice. Fhold was assisted by Studio Dondona.