During a three-year partnership with 3i, Italy's leading toy company, Giochi Preziosi, introduced highly successful new products and delivered operational efficiencies. As a result, turnover rose €130m and profitability soared 42%.
Precious toys
Ever since The Adventures of Pinocchio was published in 1883, Italian toys have captured the imaginations of children around the world. Today the company at the heart of the Italian toy industry is Giochi Preziosi – literally “precious toys”. Renowned for its own-brand Cicciobello dolls, Giochi Preziosi also creates toys under licence for a wide range of well-loved characters, from SpongeBob SquarePants to Shrek and Power Rangers. The company’s international reach has made it not simply the undisputed market leader in Italy but also the fourth largest toy company in the world. The company was founded in 1978 by Enrico Preziosi as a wholesale toy distribution business. Under his leadership, the enterprise expanded its offering into shoes, baby products and snacks, and built a 90-strong chain of retail outlets under the Toys Center brand. By 2004, the company’s rapid organic and acquisitive growth was delivering €590m annual turnover, and its international success had created valuable market positions in France and Spain.
The best possible partner
3i’s investment team in Milan had maintained a close relationship with Enrico Preziosi since 2002, so when the toy maestro chose to involve a private equity partner in 2005, 3i was well-placed to assist. As 3i’s Managing Director for Italy, Marco Fumagalli, recalls: “3i’s investment in the UK’s Early Learning Centre (ELC) had demonstrated the value we could add to a child-focused retailer. We brought the CEO of ELC to Italy for a week during our initial discussions with Enrico Preziosi, to highlight the opportunity to migrate learning and help develop a highly practical action plan.” Although Enrico Preziosi talked to other potential partners, he was clearly drawn to 3i’s deep experience in the consumer sector, combined with its pan-European network. Of equal importance, he saw the 3i team as the right people for the journey. In his own words: “3i is no doubt the best possible partner we could have found to help drive our aggressive development plan. To secure a European market-leading position in this sector, we needed above all a partner in whom we could place our trust."
Deploying core strengths
By February 2006, 3i had acquired a 52% holding in Giochi Preziosi, in a series of investments that valued the company at €521m. The investments enabled a minority shareholder to liquidate his holding and gave Enrico Preziosi an opportunity to realise some of the value that he’d built over the years. For Marco Fumagalli, who took a seat on the Giochi Preziosi board, the company has two very clear strengths: "Firstly it is outstanding at research and development. Its creative team in Milan works highly effectively with its development team in Hong Kong, enabling the cost-effective design and prototyping of toys that have a unique appeal. Secondly the company has a genius for marketing. It knows exactly what will sell and supports its products with incredibly well-targeted campaigns." Following 3i’s investment, the strengths of Giochi Preziosi were used to create another winning own-brand range, Gormiti. These heroic figures lie at the heart of a fantasy universe and have quickly achieved massive appeal, adding €100m to the company’s annual turnover and positioning it for further success as Gormiti enters new territories.
Enhancing operational effectiveness
Working together, 3i and Chairman Enrico Preziosi revitalised the top team through a series of senior appointments that included a new CEO, Finance Director and Head of Retail. 3i also helped to introduce a stock option plan to incentivise key managers. Operational effectiveness was a key focus. Although manufacturing had long been outsourced to China, the operations still provided a number of opportunities to enhance the bottom line. By advising on issues such as product mix and store layout, 3i helped the Toys Center retail chain achieve its full potential. In addition, a merger of functions for the two food-based businesses delivered significant economies of scale. 3i used its global network to support growth, helping Giochi Preziosi exit a minority holding in its original UK distributor and acquire Flair as a wholly owned UK subsidiary. At the same time, 3i helped to enhance budgetary and working capital management. Key financial reports were produced monthly rather than six-monthly, and a new approach to the vital Christmas delivery period meant that the company could give customers a more flexible service while eliminating the need to offer discounts.
A great fit
By 2007, the company’s annual turnover exceeded €720m. Over three years, its EBITDA had risen 42% and its workforce had increased by around 250. At the same time, the company’s debt had fallen significantly, thanks partly to a sale and leaseback of real estate: arranged by 3i, the sale and leaseback delivered a €73m cash inflow.