Guido Corbetta Chair AIdAF-EY of Strategic Management in Family Business In memory of Alberto Falck Helsinki, 19 th September 2014 Accessing growth capital: exploring the best alternatives for family business entrepreneurs

- 2 - Source: EY, «The Vital Entrepreneur. High impact at its best», 2013 How do family-owned companies usually fund the growth of the business?

- 3 - Long term financial resources for long term investments Investments time horizon Funding sources long term (innovation, M&A, internationalization, diversification) «External»   IPO (minority)   PE (minority)   Bonds To be replaced after 4-6 years «Internal»   reinvested earnings   sell of non core assets   equity from the owning family

- 4 - Traditional internal long term financial resources have some limits Reinvested earnings Profitability insufficient to self- finance both short term and long term investments Equity from the family Consistency with family’s committment and decisions of capital allocation and risk diversification Sell of non core assets Lack or insufficient value of non core assets

- 5 - If family businesses want to collect external long term resources they need ….   Ambitious and sustainable strategic plan   Effective corporate governance   Reliable and motivated management team (track record)   Transparency and communication   Professional financial planning

- 6 - Why family businesses are reluctant to IPO or PE? (1/4) Economic Asset: Financial Return Share Value Share Holders’ ValueS Emotional Asset: Psychological Return Share Holder Value Source: Lansberg-Gersick

- 7 - Why family businesses are reluctant to IPO or PE? (2/4) «If you talk to PE or people in listed companies, it’s about return on equity, top line growth and key ratios. And the easiest way to achieve those things is to load up with debt and make acquisitions. A long-termist family business don’t do that. I think there’s really a fundamental watershed between the philosophies» (Philip Aminoff, President Emeritus of European Family Business Group and Chairman of Electrosonic Group, a Finnish family business - Source: EY 2013)

- 8 - Why family businesses are reluctant to IPO or PE? (3/4) «We don’t think in quarters, we think in generations» (Mario Preve, Chairman of Riso Gallo, an Italian rice producer since Source: EY 2013) «We look at our investments over decades rather than in quarters» (William P. Lauder, Executive Chairman of Estée Lauder Companies Inc. – Source: Egon Zehnder International, The Focus vol. XV/1, 2011)

- 9 - Why family businesses are reluctant to IPO or PE? (4/4) «I like the markets and understand that they play an important role, and a necessary one, if a company is beyond a certain size. But they overdo it in one direction or another and force you into running a company in a certain way. Especially in a time like this, it is an advantage to be a family-owned company» (Heinrich Spaengler, Chairman of the Supervisory Board, Bankhaus Carl Spaengler & Co Aktiengesellschaft, a 180-year-old Austrian private bank – Source: EY 2013)

The advantages of IPO (1/5) Collecting significant financial resources maintaining D/E equilibrium Attracting external managers and renewing the managerial approach Increasing company credibility towards stakeholders (both industrial and financial) Increasing the recognition of the value of the company Allowing to buy out family shareholders Growth Generational transition Reputation Diversification of family wealth Investing resources in other businesses or activities

The advantages of IPO (2/5) «We decided to list our shares on the Stock Exchange market as we understood the opportunity to use equity as a tool to finance projects – through mergers, cross stock- exchange and any other possibile operation regarding the share capital – that could support the growth of our group» (Pierantonio Nebuloni, former CEO of ERG Spa, an Italian listed Oil company – Source: Aidaf)

The advantages of IPO (3/5) PRE IPO POST IPO REVENUES Source: our elaborations based on Prada and Ferragamo financial statements Index: 2007=100 IPO # STORES PRADA & MIU MIU

The advantages of IPO (4/5) PRE IPO POST IPO EBITDA Source: our elaborations based on Prada and Ferragamo financial statements Index: 2007=100 IPO

The advantages of IPO (5/5) Source: our elaborations on Bloomberg database SHARE PRICE Share price since Prada and Ferragamo IPO Index: June2011=100 (Rebased in $ terms)

The advantages of PE (1/2) … through PE it can acquire competences, experiences, relations, besides financial resources Organizational restructuring Ownership restructuring Accelerating (long term) growth Succession Internationalization Governance restructuring Technological development If the family business is involved in … M&A (industry consolidation, diversification, …)

The advantages of PE (2/2) «I am very pleased to work with Blackstone and, in particular, with Stephen Schwarzmann, whom I admire for his achievements and who shares the family’s vision for the development of Versace» (Donatella Versace, Creative Director of versace Group – Source: Versace/Blackstone press release, 2014)

How do PE s position as active minority investors? Active governanceGoals to achieve through active governance   Board representation   Role in the appointment of key managers   Support management as «sparring partners»   Veto rights on key topics   Exit protection mechanisms (right to call IPO or sale starting from a certain date)   The objective of FSI in managing its investment portfolio is to create leading global businesses in their sectors   FSI looks at the possibility of its investee companies to:   grow both organically and through acquisitions   consolidate or improve international presence   have a clear path to exit, mostly through IPO, by building a credible equity story The mission of Fondo Strategico Italiano: «patient, long ‐ term investor, with active governance» Source: FSI, 2014

In conclusion … … think to the future of your company (and your family) … IPO and PE may be useful for your company (and your family) … be pragmatic and evaluate advantages and disadvantages of IPO and PE … in any case, create an holding company and define professional governance and management systems