MILAN – Venture capitalists worldwide have identified the area where telecommunications, information technology and media converge as a fertile – and rapidly expanding – source of investment opportunities.
As its name suggests,Convergenza, a new Italian fund, will focus primarily on these sectors, but the fund also will target biotechnology, health care and tourism/services companies.
Convergenza was conceived by Ubaldo Livolsi, the former CEO of Fininvest, who has formed his own investment bank, Livolsi & Partners. The fund, which has a euro 200 million ($214.8 million) target, is scheduled to close in mid-October.
With an informal summer closing, Convergenza had amassed euro 120 million ($128.9 million). The core investor is Dresdner Kleinwort Benson (DKB), which has committed 30% of the total; around 40% of the balance was drawn from Italian institutions, alongside contributions from other European and United States investors. By late September, Convergenza had received additional commitments, which brought the fund to 75% of its target level.
Mathias Hink, head of global media finance at DKB, said the investment in Convergenza will form a central plank in the bank’s overall Italian private equity strategy, full details of which will be unveiled in the near future. Convergenza’s principal attractions for DKB, according to Hink, are its strong and well-connected management team and its timing. The telecom, IT and media sectors in Italy are ripe for expansion, and DKB judges that Convergenza, combines the right “political” vision and huge business opportunities, Hink said.
Italy is the world’s fifth largest market for both television and telecommunications services, which are in the process of deregulation. However, the telecommunications sector accounts for only 1.5% of Italian GDP – half the U.S. level – while the penetration of cable and pay-TV services is relatively low. Italy also is an important source of worldwide media content. In combination, these factors should ensure a large supply of investment opportunities for Convergenza, which will invest 50% to 60% of its capital in these convergence sectors, together with Internet and e-commerce enterprises. Biotechnology and health-care opportunities are likely to absorb a further 20% to 30% of Convergenza, with services and tourism ventures comprising the balance. The fund will deploy 75% to 80% of its capital in later-stage venture situations with a three- to five-year exit horizon, typically investing euro 10 million to euro 15 million ($10.7 million to $16.1 million) per deal.
Livolsi & Partners will act as investment adviser to Convergenza. Frederic Arnaud, who until March was vice president of corporate development at Fininvest, and Stefano Borghi, the former CEO of Nokia Italia, heads the management company, Convergenza.com. Overall, the fund’s manager, investment adviser and supervisory board combine more than 100 years’ investment, management, M&A and IPO experience in its target sectors.
Luxembourg-based Convergenza will have an eight-year term with two possible one-year extensions. Its terms and conditions feature a 7% hurdle. Returns of as much as a 25% per annum will be subject to the normal 80%/20% carried interest split; above that level, the management carry rises to 35%.