BC Partners’ entry with Bain Capital Private Equity into joint ownership of Italy’s Fedrigoni was an opportunity to take a stake in a defensive asset amid a worsening global economic outlook. But it also showcased some of the adjustments dealmakers are having to make to get business done in a rising rate environment, according to Stefano Ferraresi, partner, head of the industrial sector in Europe and the Italian market, for BC Partners.
After buying Fedrigoni in 2017, Bain Capital will now have co-ownership with London-based BC Partners in a deal announced last week. It valued the company at €2.7 billion to €3 billion, PE Hub Europe understands.
Headquartered in Milan, Fedrigoni specialises in the production of special papers for packaging, graphics, print and art, and in the conversion of paper and other materials into self-adhesive products.
A large part of its business is making packaging for high-end designer goods – a sector less likely to take a hit from the cost-of-living crisis affecting many major economies worldwide, said Ferraresi, as well as offering an attractive investment proposition during any part of the economic cycle.
“It is a very small cost item overall compared to the value of the products they package, but it’s incredibly important for the perception of the customer,” Ferraresi told PE Hub Europe. “That’s where you can position yourself and develop an attractive business if you can provide the right quality and service. You have some good pricing power and can achieve good profitability in these segments.
“Luxury packaging is generally more insulated from recessions than many other packaging segments. And the self-adhesive label businesses supply products for applications in personal care, wine labels, pharma, among others, that tend to be rather stable during soft economic periods.”
On top of those benefits, several features of the deal allowed it to get over the line.
“The company has a very good level of cash conversion compared to players in the broader packaging sector, which is another element that we really liked,” said Ferraresi. “It’s definitely one of the reasons why we were able to put together the financing for this deal in the current environment.
“We had to adjust the capital structure of the deal to take into account the more difficult environment. To put together the best possible financing and capital structure for the deal at this stage would have been difficult if it was just a straight sale. Being able to cooperate with Bain Capital meant we were able to put together something we are happy with. We did have to factor in a higher cost of debt than we would have had a year ago.”
Paper tale
BC Partners also sees potential for Fedrigoni to use its specialist paper knowledge to move into new areas, particularly those with a sustainable focus.
“Fedrigoni is very well positioned to benefit from the shift from plastic to paper packaging given their level of expertise and know-how in paper,” said Ferraresi. “The food packaging side is still a relatively small area but there’s a lot of potential demand and the company is receiving inbounds from food companies that are trying to make their packaging more sustainable by focusing more on paper-based solutions.”
That puts the investment in line with another made by BC Partners. In February 2021, it completed the take-private of Italian firm IMA Group, an automatic packaging machine producer that is investing in the production of sustainable, paper-based packaging.
For Fedrigoni specifically, BC Partners has several plans. The firm operates in markets with organic volume growth and “in addition, thanks to the exceptional management team and their ability to develop very strong relationships with customers, and provide high quality products and solutions, they’ve been able to gain market share”, said Ferraresi.
“The management team has a very strong track record of implementing continuous operational improvements within the business. We expect to benefit from some margin uplift as the company continues that. There’s a really strong CEO here who has done exceptionally well, who’s very committed and reinvesting significantly behind the next leg of the journey. He is one of the big attractions of this investment.”
BC Partners will also support the firm’s M&A strategy that has been implemented over the last few years. “The objective is to continue to reshape the portfolio more and more into the higher margin, higher growth applications,” said Ferraresi. “We have a good pipeline of acquisitions that we’ve discussed with the management team and with our partner, Bain Capital. I’d like to execute on a few of those early on into our investment.”
About two-thirds of Fedrigoni’s business is in Europe and it will remain the main target for the luxury packaging business. There could be the potential to expand in the US, “although we’ll need to find the right target there to do that”, said Ferraresi. There could also be an opportunity to expand in Asia, although its market tends to be sourced locally, he added.
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