- M&A driven by the wealthy is highest since before 2007 crisis
- Agnellis, Reimann clans and Schmidheiny in major transactions
John Elkann, the leader of Italy’s billionaire Agnelli family, has a way of preparing his relatives for a big takeover battle that you won’t see at your everyday company.
In June, he gathered two branches of the prominent Italian family -- owners of Ferrari and Fiat Chrysler-- at the renowned Juventus stadium in Turin for a friendly game of soccer, cheered on by dozens of relatives. The next day, at the annual meeting of the family’s holding company, Elkann explained why he was pursuing a deal that would shift the business empire from cars to finance, the clan’s most transformative deal in over a century.
Europe’s rich families and individuals -- from Italy’s Agnellis to Thomas Schmidheiny of Switzerland and Vincent Bollore of France -- have been driving some of the biggest and most high-profile transactions in recent years. The latest came in August when the Agnelli family’s investment company, Exor SpA, won the bidding for reinsurer PartnerRe Ltd. for $6.9 billion. Only a month earlier, Coty Inc., controlled by the German-Austrian Reimann family, agreed to buy 43 of Procter & Gamble Co.’s beauty brands in a $12.5 billion deal that would remake it into one of the world’s largest cosmetics companies.
The recent purchases reflect how some Old Continent’s families are focusing on less risky sectors, such as consumer goods or reinsurance, while in other cases consolidating in old-line industries that are facing low-cost competition. Sometimes, the younger generation is the impetus for the deals, as is the case with the 39-year-old Elkann.
The goal is to try to benefit from long-term trends such as consumer spending in developing markets, according to bankers, academics and consultants. The volatile stock markets in August served as a reminder of why these families are opting for deals rather than piling their money into unpredictable financial instruments.
"Wealthy families are increasingly driving M&A as they seek to invest in megatrends like consumer goods, health care and services," said Hermann Prelle, chairman for Germany at UBS Group AG, the world’s biggest wealth manager, who has traveled from the Swiss Alps to the Cote d’Azur to advise clients. "There is a belief among families that you can only have an entrepreneurial edge if you take a long-term view."
The scandal engulfing Volkswagen AG, which admitted to cheating on diesel emission tests, shows that family-owned companies aren’t necessarily more stable, and diversifying investments often makes sense. The Porsche and Piech families, which together control a majority of VW through a holding company, have seen about 23 billion euros ($26 billion) wiped off the carmaker’s market value since the revelations on Sept. 18.
Last year, deals by European family offices reached the highest level since before the financial crisis in 2007, according to data compiled by research firm PitchBook. The 13 transactions in 2014 compare to a record 18 in 2007 and 8 so far this year, the data show.
Their deal-making can be significant in affecting Europe’s economy. Almost half of the world’s 500 largest family businesses are in the continent, where their sales account for more than 13 percent of gross domestic product and almost 9 million jobs, according to the EY Family Business Yearbook 2015.
Europe has a long tradition of family-owned companies, from some of the oldest, such as private German pharmaceutical and chemicals maker Merck KGaA, which was founded in 1668, to the biggest, listed carmaker Volkswagen, with more than $200 billion in sales.
The Reimann family traces its $16 billion fortune back to 1823, when Johann Adam Benckiser founded his namesake chemical company in Pforzheim, Germany. It has been accelerating its shift away from specialty chemicals and citric acids into coffee, luxury goods and cosmetics.
In May 2014, JAB Holding Co., the family’s investment arm, agreed to buy Mondelez International Inc.’s coffee unit for $5 billion in cash to create the world’s second-biggest coffee company by combining it with D.E Master Blenders 1753 BV, which it bought a year before. It also purchased Peet’s Coffee & Tea Inc. and Caribou Coffee Inc., well-known brands in the U.S.
At the same time, JAB Holding has reduced its stake over time in Reckitt Benckiser Group Plc, the chemical-turned-consumer group that owns everything from Cillit Bang cleaner to Durex condoms.
“We like the growth, the low capital intensity, the stability over the business cycle and the pricing power of strong brands,” Peter Harf, senior partner at Luxembourg-based JAB Holding said in December when asked about the coffee and luxury brand investments.
The creation of the world’s biggest cement maker this year -- the $35 billion merger of Holcim Ltd. and Lafarge SA -- was driven by two billionaires: the Swiss businessman Schmidheiny, Holcim’s biggest shareholder, and Albert Frere, Belgium’s richest man and Lafarge’s top investor. Schmidheiny has a net worth of $4.7 billion and Frere’s is $2.9 billion, according to the Bloomberg Billionaires Index.
Both companies have been in cement for decades, but increasing competition from low-cost producers in emerging markets and eroding demand for building materials amid economic downturns spurred them to combine operations to gain scale and cut costs.
Vincent Bollore, one of France’s richest men with a $5.6 billion net worth, according to the Bloomberg Billionaires Index, has been among the busiest dealmakers in Europe the last two years. He increased his control of French media empire Vivendi SA and dismantled telecommunication businesses to refocus on pay-TV, films and the music industries. This included selling more than $30 billion in assets including phone operations in France, North Africa and Brazil -- all very competitive and volatile markets -- as well as shares in video-game maker Activision Blizzard Inc.
The acquisitions are all about "redeploying Vivendi into content production, distribution and data gathering," Bollore told investors at the shareholder gathering in April.
Agnelli family leader Elkann has been seeking to invest in the reinsurance sector to reduce dependence on the volatile motor-vehicle industry. The months-long battle that was prepared with the soccer game ended with the acquisition of U.S. reinsurer PartnerRe after Exor beat out Axis Capital Holdings Ltd. He also sold real-estate company Cushman & Wakefield Inc. this year and product-inspection provider SGS SA in 2013.
By investing in reinsurance and spinning off supercar maker Ferrari, the family has pursued a strategy to "simplify" its investments and reduce dependence on capital intensive industrial businesses like cars, trucks and tractors, Elkann said in an interview in May.
And the Agnellis aren’t the only Italian family doing deals. Ferrero International, the closely held confectioner, agreed in June to acquire Thorntons Plc to bring the 104-year-old British chocolate maker under the same roof as Nutella hazelnut spread.
For some deals, families are teaming up more with private-equity firms on deals. Family offices put 27 percent of their assets into private equity this year compared with 18 percent five years ago, data provider Preqin said in May.
For example, Swedish buyout firm EQT Partners AB in November joined with Germany’s Struengmann family to buy the hearing aids division for $2.7 billion from Siemens AG. By teaming up with the family, the buyout firm could pledge to investors that the business would be "treated with the right industrial values," addressing concerns about quick-flip private-equity firms. And the Struengmanns, in return, found a partner to help them invest their money in the segment where they made their fortune, namely health care.
Investment banks have taken notice of the rise in transactions, cultivating relationships with families’ wealth management arms.
"It’s safe to say that M&A advisory to a private individual or family is even more relationship-focused than a public company," said Christopher Geczy, a professor at the Wharton School and head of the Wharton Wealth Management Initiative. "The adviser is, in a sense, personally responsible to some degree for the family’s welfare and indeed its fortune."