And now let's enter deal number four, which is represented by expansion financing. When we talk about expansion financing, we start talking about the financing of adult companies. That means we exited from the world of venture capital in which we have evidence of very young companies and startup. What is expansion financing? Expansion financing is the financing of the process of growth of the company. And coming back to basics of strategy, probably you know that the expansion or the growth of the company can be managed in two different ways. On one hand, the growth could be internal or organic. That means the company grows by itself, just simply investing in new fixed assets or just simply announcing working capital. On the other hand, growth could be external. This is much more complex because external growth means the company wants to buy another company, and the effect is to increase, probably, much more, the amount of sales. When we talk about external growth, in many cases, the company takes these decisions to enter a new market or to enter a completely different business area. So as we have two different options, it is fundamental to understand what is the job of the private equity investor, as we have evidence of two very different jobs. The first one for the internal growth is honestly very simple. The second one for external growth, is honestly very complicated. Let's start with internal growth. In this case, the job of the private equity investor is— I want to exaggerate—is very simple. Because the task of the private equity is to give money to the company to buy fixed assets or just simply to finance the working capital. I said it's a simple job because the company has got many alternatives, for example using a mortgage, using an open line of credit, using bonds, are honestly very effective alternatives. A company decides to use a private equity for two reasons. The first reason is that there is a lot of private equity willing to give money to the company. That means money is very cheap in this case, because the company can easily select what's the best offer coming from the private equity ward. On the other hand, the company would like to use the private equity for some benefits, for example, knowledge benefit, or certification benefit. In this case, the company needs money but needs much more, because it wants, for example, to penetrate new markets. And in this case, a bank giving a loan is not able to help the company penetrate a new market. However, this is the story of internal growth. But now we have also to discover the story of external growth, that using another label is the story of M&A (merge and acquisition), because in external growth, at the end of the day, the company wants to buy another company to increase the level in the amount of sales. In this case, the job, the role of private equity, is honestly much more complicated, because private equity in this case is not simply a provider of money to buy the other company, but the role of private equity is to be an advisor and a consultant of the company. Its job is really hands-on. The first step of an M&A process and the first job of the private equity investor is to help the company scout the market and to identify the name of the company that makes sense to buy. This is honestly very common. For example today, we have many European companies willing to buy another company in India, in China, in Indonesia, and in Brazil; but they do not have the knowledge to know the name of the company that makes sense to buy. This is the first job of private equity: to scout the market. The second job of the private equity is to start negotiating with the potential target, if it makes sense or not to launch an M&A. The third job of the private equity is to give money to the company to buy the other one. In this case, we have two different alternatives: the first option we have on the table is that the private equity investor gives money to the company, receives shares from the company, and the company has enough money to run the M&A. If the M&A is successful, the company, with the target, are going to merge together. We also have a second option. The second option is that the private equity investor is going to create an SPV, where SPV means special purpose vehicle. It’s a new company, it’s an empty shell in which the private equity investor is going to put money with equity, the company as well; together they collect money from the banking system, and the SPV has enough cash to buy the other company. Typically, we use, in the market, the second option for two reasons. The first reason is that we need a lot of debt, and the company doesn't want to increase the amount of debt inside the balance sheet. The other option is related to the fact using the SPV we keep completely separated, the characteristics, the profile, the value of the company from the value of the acquisition. That's, for example, very important when the company doesn't want to have the private equity investor having a benefit from the outcome of the merger. The last step of the M&A process, driven again by private equity, is to give legal and taxation support to run the acquisition and to organize the merger. So it’s a very different and very difficult activity that clearly demonstrates that we have a lot of strategic options on the table, and especially that the role of the private equity investor this time is very hands-on.
