MEF and Wurth Electrical Wholesale Group together in the Italian market for electrical equipment distribution.

Since February 2015 MEF, one of the leaders in electrical equipment distribution market in Italy, has started an important long term partnership with the German group Würth, which acquired a majority stake in MEF’s equity capital.

Würth Electrical Wholesale is the division specialised in electrical equipment distribution of Wurth Group, headquartered in Kunzelsau (Germany) and European leader in the distribution of assembly and fastening material, with approximately € 10 billion revenues.
In 2014 Würth’s electrical equipment distribution business area exceeded € 1 billion revenues for the first time, accounting for about 10% of the Group’s total revenues.
MEF, a multi-specialised company well established on the Italian territory, was founded in 1968 by Antonio, Emilio and Vanda Giaffreda.
The company is headquartered in Florence and it is active in Tuscany, Lazio, Liguria and Umbria regions; it operates through 32 points of sale and employs about 500 highly skilled people, who have always represented for the company its real asset and success factor.
In 2014 it reported approximately € 120 million revenues, with about 5% EBITDA margin.
MEF products’ portfolio is segmented in serval divisions: civil, home automation, industrial automation, lightening, renewable energy, special plants, cables and others. Its products’ offer is completed by a wide range of pre and post-sale and customers’ support services. Even if it has always been a reference point for technicians in central Italy, MEF also refers to other categories such as designers, architects, public administrations and machinery builders, always supported by a team of industry experts.
The partnership is based on the shared vision to become a driving force for the current consolidation process occurring in the Italian market and it will benefit from Würth Group’s economic and financial strength, together with its managerial and strategic skills.
Antonio Zecchino, Cavour Corporate Finance’s president, assisted Würth Group in the research and selection of potential targets, originated the negotiations with MEF and assisted Wurth Group in every phase of the transaction.
Würth Group’s legal advisor was Studio Chiomenti.
Thanks to this acquisition Würth, already present in 7 countries, is now facing on the main European markets for electrical equipment distribution.
“Based on a strong consideration for local entrepreneurs, Würth Electrical Wholesale Division is composed by companies which are solid regional or national leaders. Each company’s unicity and individuality is endorsed by the fact that they operate though their own brand. These companies can benefit from their ability to rely on centralised resources as well as from cooperation among the group’s partners.
This is why we firmly believe that MEF will now enter a network which can further develop its strengths and support the company if requested”.
These are the words spoken by Ulrich Liedtke, Würth Electrical Wholesale senior vice president and responsible for the Group’s international activities and development and for the acquisition process.
Leonardo Giaffreda, one of the six members of the family, who will remain as president and shareholder together with the other family members, commented:
“As for MEF, which has been present on the territory for nearly 50 years, we see in Würth Electrical Wholesale Group an ideal partner, also because we both are family controlled business.
We believe that our partnership represents an innovative, new and original project for the Italian market: our knowledge of dynamics and trends in the industry, acquired in nearly 50 years of activity, coupled with the undiscussed professional competencies and the financial solidity of the German Group, will allow us to play a key role in the Italian market. This is why we are certain that MEF’s role will be strengthened and it will represent the model and platform for the further development in the Italian market.”

The Story of the 5th missing brother

That was the description of the project and official comments.
However it is certainly more interesting to know about the story of this operation, which lasted for 3 years in total, and about the teachings that it left to those who worked to successfully complete it, first of all myself.
During the 3 years of negotiations we had to overcome an unbelievable number of objective and subjective problems, real and “artificial” difficulties.

First teaching: chemistry between People and Parts is essential.

In our job, apart from all the technicalities and economic and financial analyses, we ought NOT to forget that companies are made of people, with their capabilities and flaws, dispositions and talents, weaknesses and passions.
Würth Group had already decided for several years – since 2011 precisely – to invest in the electrical equipment distribution industry in Italy and had conferred Cavour the mandate to search for a target which could have become the “Platform Company” for Würth in Italy.
For several weeks Cavour studied the Italian market and its main independent players, all of which were family around businesses, and at a later stage Würth and Cavour decided to focus on a restricted number of potential targets to be approached in order to start the negotiations.
The first negotiation lasted for around 1 year, and it was conducted with another entrepreneur open to consider the sale of his company. However, as the meetings proceeded, we realised that the target and the entrepreneur were not the ideal partner for the project that Würth Group wanted to realise. In fact there was not the necessary “chemistry” to align negotiation objectives and strategic interests of the Parts.
Keeping these problems in mind, when we approached MEF and Giaffreda family we decided to explain carefully and in detail Würth Group’ strategy in the Italian market and the requisites that the Group was looking for in potential partners.
Giaffreda family, who had never considered selling the company before, fully shared the analysis conducted by Würth’s management on the Italian market competitive scenario, as well as the strategic and entrepreneurial rationale underlying the project.
Then the family decided, without any prejudice, to evaluate seriously the idea of a long term and wide-breath partnership with Würth Group.
Giaffredda brothers developed this idea and assimilated the chemistry between parts so much that defined Ulrich Liedtke as “The 5th missing brother”.

Second teaching: small is not beautiful any more.

For several years Italian entrepreneurs have been nurturing the idea that “Small is beautiful!” and that was a true and winning strategy for many small and medium family owned companies in the past decades, but today, in a globalized and interdependent economy, small is NOT beautiful any more, but it is getting more and more dangerous and unsuccessful.
Today these entrepreneurs have to set a deep analysis of their competitive positioning as primary strategic target and they have to decide whether to act as a consolidator in the market, fostering the development of similar/complementary firms, or look for a strategic partner. In other words, they have to decide whether they want to become “prey or predator”.
A modern entrepreneur who decides to be a “consolidator”, if he or she owns resources, capabilities and prerequisites, has to strengthen family control by developing a strong and conscientious management, mostly external to the family itself, therefore leading to a separation of the corporate control power, held by the family, and the operating management.
Otherwise he or she needs to look for the “Optimal Strategic Partner”.
Giaffreda brothers immediately understood this topic and decided to lead, together with Würth Group, the consolidation process that the Italian market is facing in this segment as well as in other industries.
They didn’t miss this opportunity, which is bonding with an international group with high managerial and financial resources, guarantying the development of their business and their employees for a very, very long period of time.

Third teaching: selling a majority stake does NOT always mean giving up one’s entrepreneurial mission.

Without repeating concepts already expressed, this operation shows that when two Parts share a long-term strategic project and decide to walk through a way of development and growth together it is possible to design a governance model which leaves enough space to the “consolidated” entrepreneur.
Of course, finding the right corporate governance structure which balanced Würth’s need to have the majority power and at the same time let Giaffreda family a large managerial and decision autonomy was the hardest part for both financial and legal Advisors.
This required the quest for a complex balance of agreements and rules, measures and countermeasures, compromises among many different requests and prerogatives. More in particular, this delicate balance had to be integrated in the corporate governance system of Würth Group, which employs more than 65,000 people and is composed of several hundreds of entities around the world. These entities must, of course, share some common basilar governance rules.
On this side, legal Advisors’ contribution has been fundamental and decisive.
Besides, I would like to underline the importance of the accurate choice of the legal advisors in M&A operations, since the success or failure of these operations depend critically upon them and upon the definition of the agreements.

Fourth teaching: Financial Advisor’s role in a complex cross border M&A operation. “Volli, e sempre volli, fortissimamente volli (I willed, and always willed, and strongly willed)” – Vittorio Alfieri

In 3 years of negotiations, clearly, there is an innumerable amount of difficulties that has to be overcome: impasse situations, continuous stop-and-go, interchangeable stiffening from both parts, unpleasant and invasive procedures for the one of the Parts (the acquisition due diligence, for example), mood changes for people involved, and finally exogenous political, financial and economic factors that can always change the macro scenario.
Let’s provide an example only considering exogenous factors.
It was not easy to convince the top management of a German group to keep investing in a complex and sometimes incomprehensible reality such as Italy, especially as the operation had to be extended in terms of time, costs and complexity.
How can you explain why MEF pays suppliers within 160 days but cashes in credits within 175 days instead?
How would you explain that MEF waited nearly 2 years in order to build its new logistic center, blocked by authorizations and licenses?
How can we explain that in the same area there are players that always and correctly pay taxes, while others evade and elude them without any risk of severe sanctions?
How can we explain that this is NOT a country for unfair competition?
How do we explain that the dysfunctional labor market, in which unemployment rate is too high and laws are extremely complex and counterproductive, is discouraging growth policies and the hiring process of new workforce? (fortunately the new law is heading toward the right direction).
How can we persuade anyone to invest in Italy, a country which totally lacks of an industrial policy able to attract and support foreign investments, when all the neighboring countries are offering incentives and benefits?
However Italy, despite all of that, keeps attracting investments from foreign industrial groups. We are certainly lucky for this and this still constitutes one of the several beautiful things about this country.
Therefore, the main role for a financial advisor is to be always at heart of the process (which is becoming more and more long, difficult and complex), doing his or her best to coordinate all the different phases and keeping all the parts focused on the key moments of the negotiation. Thus the financial advisor’s role is to untangle the web of unsolved issues and difficulties with patience, concentration and dedication and especially to be always determined to complete the operation successfully. “I willed, and always willed, and strongly willed”.

Fifth and last teaching: learn art and set it aside.

During the past 3 years I had the luck and privilege to work by Würth Group’s managers side, who are truly extraordinary in their competence, organisation and entrepreneurial culture.
You can’t succeed as world leader by pure chance.
Last but not least, Studio Chiomenti’s contribution was extremely precious. They used all their wide and rich knowledge to build up a set of agreements and contracts so formidable that the Signing required several hours to be completed.
In conclusion, I would like to thank sincerely all these managers and professionals who have enriched me, both personally and professionally.