Gruppo Argenta exemplifies a carefully executed consolidation strategy which, through 11 acquisitions, and in the space of just two years, positioned the business at the forefront of Europe’s largest vending market.
Having systematically explored the European vending market for a number of years, Gruppo Argenta, already among Italy’s leading vending operators and out-performing the market, presented an exciting opportunity in the fragmented but high-growth Italian vending market.
Our strategy was to take the business to the next stage of its development, working with the company’s first-rate management team – still founder led - to identify value-enhancing acquisitions and drive organic growth through product line extensions and the introduction of new distribution channels.
Over the two-year period of our investment, Gruppo Argenta integrated 11 acquisitions, including the strategically significant acquisition of Lombardy’s largest player, Cafebon, resulting in major operating synergies, and doubled its sales.
“The partnership between Gruppo Argenta and Advent started producing positive results from the outset because of their flexibility and their in-depth knowledge of our market.”
- Epaminonda Scaltriti, Founder and Chairman Gruppo Argenta
“When we discussed the market with Advent, their knowledge really showed. Their language was appropriate and linked to our business.”- Roberto Franchini, CEO Gruppo Argenta
In all, Argenta acquired 11 businesses during Advent's two-year investment period, the first of which was completed within six months of the original buy-out.
Established in 1967, Gruppo Argenta had quickly grown to become one of Italy’s leading players in the vending machine sector, generating year-on-year revenue growth of 11.4% per annum.
The opportunity for consolidation was clear: the top ten players accounted for just 28% in a market which was valued at around €1.5bn a year, with a yearly expected growth between 5% and 7% and populated by some 1,500 companies,
It had another clear advantage over other markets. “In other countries, it’s generally the company that pays for the provision of drinks through vending machines,” explains Advent’s Filippo de Vecchi, the Advent director who led the deal.
“Customers are seeking value, which squeezes margins. They also do not want to offer other products, such as snacks. In Italy, instead, the employees pay for their drinks and other vending services such as snacks and therefore they look for premium quality. The market is not price sensitive and that makes it fundamentally more attractive than its European peers.”
In 2005, Gruppo Argenta was looking for a new partner to support its expansion plans. In June that year, we acquired 65% of the business. Working in partnership, Advent and management identified targets, negotiated with local entrepreneurs, sourced finance to purchase the businesses and then integrated them successfully to take full advantage of synergies in purchasing and logistics.
The most significant of these was Cafebon, thus gaining increased coverage in Lombardy, one of Italy’s most economically active regions, generating 20% of the country’s GDP. The acquisition propelled Gruppo Argenta to the number one position in Italy’s vending machine market.
As a highly cash-generative business, Gruppo Argenta had a great deal of flexibility in its financing options for acquiring new businesses, yet without connections beyond local banks, it was unable to get the best terms on debt packages for some of the larger companies it was looking to buy.
With Advent as a backer, the company had access to international bank financing. This enabled it to negotiate facilities for its planned add-on acquisitions on excellent terms and with a great deal of flexibility.
“We found in Advent a great partner to support the acquisition process. They helped us with advisers, negotiating and structuring the deal, they helped us identify the right opportunities and their relationships with the major European banks meant they ensured we had the financial resources necessary for our acquisition strategy.”
- Fabio Serantoni, CFO Gruppo Argenta
In addition to the benefits offered by consolidation and the consequent synergies there were also several other ways in which Gruppo Argenta improved its profitability.
Organic growth was one. Following our investment, Gruppo Argenta expanded the product range available from its vending machines to include snacks, such as toasted sandwiches, as well as introducing a healthy eating range to capitalise on the high growth market in foods promoting well-being. It also expanded into new distribution channels, such as out-of-home entertainment points, banks and underground stations.
Pricing was another. Gruppo Argenta’s positioning at the premium end of the market meant that its main competition was local coffee bars. Its machines offered the same or even better quality products but at a much lower cost. Extensive research by consultants, including a pilot testing in the Parma branch, led to the belief that once Gruppo Argenta had significant market share locally, it would be able to increase its prices without a negative effect on vending volumes. The capacity in the market for price increases was one of the key attractions for potential acquirers of Gruppo Argenta when we came to exit.
The third area was creating increased efficiency through divestments. Gruppo Argenta had a small operation that provided vending machine services to families as well as owning a handful of bars serving mainly government offices. Neither contributed significant profits to Gruppo Argenta and were sold following our investment. This also allowed management to concentrate on developing the most promising areas of the business.
By 2007, Gruppo Argenta had grown into a business employing 1,150 people, delivering over 400 million vends a year, with its machines present in some 69,000 businesses as well as outdoor spaces and train stations.