Now that the Ferraris of espresso, Saeco and Gaggia, historic brands of high quality Made in Italy, have become Chinese (Philips recently sold them, with the entire small household appliances sector, to the Sino-American fund Hillhouse Capital) what will happen to the factory in Gaggio Montano (Bologna) where the fully automatic espresso machines are designed and produced?
Philips had decided, at the end of 2019, to get rid of the small household appliances sector (2021 turnover 2019 billion euros) by the first half of 2,3 to concentrate on the profitable healthcare equipment sector. The segment sold, which includes razors, kitchen appliances and personal care appliances, actually concerns a set of appliances which, with the exception of the fully automatic Gaggia and Saeco machines, have been produced in China for years. The operation did not cost 3,7 billion euros, as someone wrote, but 4,4 billion, as the Sino-American fund had to shell out 700 million euros to use the Philips brands for the next 15 years.
PHILIPS, A FIERCE SLIMMING CURE
This sale repeats the ferocious slimming cure that the CEO of Philips in the 90s, Jan Timmer, had started by selling the white goods giant, Ignis-Philips, to Whirlpool, just when the global growth of the sector was already looming thanks to the energy revolution and to the connection of the microelectronics. Then the Timmer had sold the Philips brand license for TVs to Taiwanese TVP, just before the gigantic leap in sales and more than a decade of profits that competitors have collected thanks to the replacement of CRT TVs with the new flat screens. Finally, the former CEO had continued by putting the lighting sector up for sale, which, in the absence of a buyer, had been demerged and listed, also in this case precisely at the time when the great revolution in energy labeling was beginning with the new LED bulbs.
The Dutch top management, gradually laying off thousands and thousands of employees (it had over 200 now has just over 70), wanted to cut costs to concentrate on the more fruitful activity of medical diagnostics. A sector in which Philips is only fifth in the world, with a turnover of 18,1 billion in 2019, and where the future will see much tougher and much more expensive competition than that of household appliances and TVs, also because in the first places there are the giants of the Big Pharma clan.
WHO ACTUALLY IS HILLHOUSE CAPITAL?
Hillhouse Capital was founded in 2005 with seed capital of $20 million from China's Lei Zhang's Yale Enterprise. With offices in Beijing, Hong Kong and Singapore, the firm makes major investments in China, India, Japan and South Korea. And it is one of the world's largest and most successful investment firms, a financial powerhouse that has raised billions of dollars from universities, pension funds, foundations in the United States and reinvested these funds with returns above the industry average. Its first investments were Chinese tech giants Tencent Holdings and Baidu Inc. Two years ago it raised $10,6 billion for Asia's largest private equity fund, which invests in healthcare, consumer, technology and services globally, with a focus on Asia. The firm won an auction last year to buy 15 percent of China's largest air conditioner maker, Gree Electric Appliances Inc, for $7,5 billion. Also, he is investing heavily in real estate.
THE FUTURE OF THE ITALIAN GAGGIO MONTANO FACTORY
Before the Sino-American financial, several companies had come forward, including the Koreans LG and Samsung. But Philips, which had and still has an urgent need for financial resources to invest in the very tough competition of the electromedical sector, hadn't given in a dollar and so yet another super-rich Chinese investment fund won the tender. LG in particular, having by now the mobile telephony sector discontinued, was very interested in the espresso business, the real one, where having an Italian brand is essential. The sector is constantly growing: it was worth more than 6 billion dollars in 2020 and by 2025 it should still increase by 3,7-5%.
For years, the number one seller of espresso machines has been De' Longhi, with a share of over 34%, precisely because it has invested in the high-end quality and Italian character of the machines. The group recently finalized the contract stipulated with some companies of the Center Lane Partners investment fund for the sale of Capital Brands Holdings Inc. What will happen for the fully automatic Saeco (which turns 40 this year) and for the Gaggia produced in Italian factory? The prospects are also uncertain because most of the low-quality and low-priced machines are already produced under the two Italian brands in Romania and China. But, as one of the founders of Saeco, Giovanni Zaccanti, current CEO of Parmacotto, confirmed to us, Italian espresso and super-automatic machines with Italian brands will have a great exploit: "For over 30 years - he declares - this is where the top of espresso technologies”.
