Good morning Eurohubsters, Craig McGlashan here with Thursday’s Dealflow.
Today we’re taking a look at a private equity investment with an ESG focus and the growing trend for US private equity money in European sport, including some of the differences in regulation and tradition these new owners are facing.
Zato do nicely. LBO France has announced that it has bought Zato, an Italian designer and manufacturer of ferrous and non-ferrous metal recycling facilities, via its Italian subsidiary Gioconda.
Gioconda made the purchase via its Small Caps Opportunities II fund. Zato’s founders, Valerio Zanaglio and Alessandra Bresciani, have reinvested and will manage the company. Banca Ifis has co-invested alongside Gioconda.
Zato, based in Brescia, has a turnover of almost €40 million. It has a presence in 25 countries, including the US and Japan, and generates over 85% of its turnover internationally.
“This investment represents a tremendous opportunity to position ourselves in the energy transition and fits perfectly with LBO France’s strategy to accelerate on ESG & Climate factors,” said Arthur Bernardin, partner, small cap, and Chiara Venezia, investment director, small cap at LBO France.
Low score. While many private equity firms have been focusing on ESG and investing in sustainable energy, a report from the Private Equity Stakeholder Project and the Americans for Financial Reform Education Fund claimed that private equity firms have invested over $1 trillion in energy since 2010, with “the lion’s share” in fossil fuels.
The report ranked eight of the largest private equity firms in its ‘private equity climate scorecard’, with only TPG scoring above a ‘D’ (it got a ‘B’). Carlyle got the lowest score – an ‘F’ – while Warburg Pincus, KKR, Brookfield, Ares, Apollo and Blackstone each got a ‘D’.
We’d love to hear your thoughts on this report – does it hold water or is it unfair? Drop me a note at email@example.com
Footing the bill. There were some other negative headlines around private equity yesterday. Todd Boehly, who along with Clearlake Capital led a consortium to buy London’s Chelsea Football Club earlier this year, got a cold response to his suggestion that the English Premier League feature an ‘all-star game’, a common event in American sports where the best players in the league form two teams for a one-off match.
Several former and current managers and players spoke out against the idea.
But with the trend for US private equity money coming into European sport, such ideas might become a common occurrence.
Stephen K Roddenberry, a partner at US law firm Akerman who has worked on several sports deals, told me that more US investors are looking to enter European sport.
“Americans believe that they can take some of the business practices with the American teams, apply it to European soccer, and make a lot of money,” he said. “The general belief is that the European soccer teams, while they have extremely long, successful histories, haven’t been managed to make profits and to increase values.
“They’ve been managed almost like cults.”
The money to be made from sports teams, said Roddenberry, is via ancillary business, such as developing stadia or launching TV channels.
“Sports teams historically don’t make money on an operating basis,” he said. “The increases in revenue have a tendency to flow to the players. Because the appreciation of the raw assets has been so consistent over the last 20 years, people are attracted to that and that’s new.
“Thirty years ago you were taught that sports teams should not be bought. They should be bought by individuals as trophy product properties, not for investment purposes. That has changed in the last 20 years because of the enhancement of revenue streams. The big kicker is the impact of gambling. Sports teams ought to get a piece of it.”
Gambling on sports had long been outlawed in the US, until in 2018 the Supreme Court declared the law prohibiting the practice unconstitutional.
But while gambling laws in the US might be easing, it’s in Europe that ownership laws are more welcoming, said Roddenberry.
Europe is “like the Wild West”, he said. “The Europeans are pretty much willing to let anybody do anything.”
Food for thought. A private equity investment banker I chatted to recently told me that there could be M&A opportunities in the food sector, in part because of the disruption to food production caused by the Russian invasion of Ukraine and the greater focus on food security.
But according to research from London-based corporate finance advisory firm Oghma Partners, M&A in the UK food and beverage sector is on the decline.
In the first eight months of the year, the firm estimated that there were 50 deals compared to 62 the previous year, a drop of 20 percent. Activity from “financial buyers”, including private equity, accounted for just 9.1 percent of deal volume.
“This could be a sign of things to come as we are witnessing rising interest rates around the world which will impact on PE companies’ ability to raise debt to fund acquisitions,” the report noted.
That’s it from me – speak to you on Friday.