PE confident of European football’s financial form; friend-shoring in software

RedBird Capital Partners bought Italy's AC Milan for €1.2 in late August.

Good morning Eurohubsters, Craig McGlashan here with the Dealflow.

The Uefa Champions League – Europe’s premier football club tournament – kicked off last night. Italy’s AC Milan, bought by US private equity firm RedBird Capital Partners for €1.2 billion in late August from Elliot Advisors, could only draw their game – but we understand that RedBird is confident of some big wins ahead.

Relegating concerns. RedBird’s purchase of Milan was just the latest in a string of private equity deals in European football, with many of the buyers based in the US. You can read a roundup here.

These purchases come as Europe faces a cost of living crisis as energy costs surge. With much of the money in European football coming from television rights, some consumers may be forced cut back on subscriptions to providers.

But we understand that RedBird believes it is too early to tell whether the cost of living crisis will have an impact on subscriptions, and that trends in media rights globally suggest that sports content, especially football, remains hugely attractive to consumers, sponsors and broadcasters.

We also understand that the firm feels that there is opportunity for growth, not just for Milan but European football more broadly.

David Wansboro and I – the two football fans on the PE Hub Europe team – have often wondered about the risks of investing in European football, where teams can be relegated from the top leagues, causing their income – particularly from television rights – to dwindle. That can happen even to giants such as Juventus in Italy and Rangers in Scotland, although both those relegations were for reasons off the pitch rather than performance on it.

Relegation is something that doesn’t happen in US sport. But this extra factor does not seem to be putting US investors off investing in football.

When I’ve put that question to some US PE funds that invest in European football, the reply has simply been that every investment in any sector comes with risk.

We understand that RedBird feels particularly confident of Milan’s prospects, given Milan won the Italian championship last year and has a strong team in place, on the pitch and off it.

Milan was also one of the backers of a proposed European Super League that would feature the biggest teams on the continent, with no relegation or – like the Champions League – qualification required. The plans fell apart after fans of the clubs, as well as other clubs and official bodies, reacted extremely badly to them, although three of the clubs involved – Juventus, Real Madrid and Barcelona – are still pushing the idea.

We understand that RedBird’s discussions on buying AC Milan began long after the European Super League collapsed and it did not feature in the takeover discussions.

Friends indeed. We’ve all heard a lot over the last few years about the slowdown and perhaps reversal of globalisation. But a term I’m hearing more and more of is “friend-shoring” – and it appears that trend is making its way into technology M&A.

A report from M&A consultancy firm Hampleton Partners released on Wednesday about enterprise software M&A found that there is a “rapid shift” to friend-shoring in the sector. “Transactions between rival countries has dropped, meanwhile deals between allied countries has more than offset that impact,” it added.

The report also found that western Europe was the fastest growing region for enterprise software M&A in the first half of 2022.

Financial play. Cinven said on Tuesday that it has agreed to acquire Säkra from Adelis Equity Partners. The acquisition has been made via Cinven’s inaugural Strategic Financials Fund (SFF) which held its final closing in July with total capital committed of €1.5 billion.

Säkra is a Stockholm-based insurance broker, providing life and non-life insurance products, as well as pension and wealth management services.

Cinven’s purchase of Säkra was driven by the latter’s track record of steady and consistent growth. Cinven will look to accelerate the company’s growth through a combination of organic growth and bolt-on M&A.

“The investment is supported by a resilient underlying market in Sweden and is well-positioned to grow organically, with further upside through its demonstrated M&A trajectory,” said Luigi Sbrozzi, partner and co-head of the SFF.

That’s it from me – enjoy your day and speak to you on Thursday.

Cheers,

Craig