Investment funds break the ice with new deals, set sight on more

Newsroom 07/02/2010 | 12:53

Investor sentiment for Central and South Eastern Europe has slightly improved over the last couple of months and several investment funds active in the region have started to move money here, Romania included. The end of last year saw several new deals involving investment funds, and whether it was private equity deals or funds invested on the local stock market ,fresh cash has started to pour in.


By Corina Saceanu


Several contracts were inked towards the end of last year between investment funds and owners of local businesses. Take the EUR 66 million deal made by Enterprise Investors in taking over retail chain Profi. Or the RAEF management takeover of brokerage firm Intercapital Invest. The EUR 20 million takeover of a share package in MedLife by SGAM was also a piece of good news at the end of 2009. After a year with no green shoots for private equity deals, the market seems to be thawing.

The still low price of local stock market-listed shares has made Romania attractive to the investment funds that invest this way. Middle Europe Investments (MEI) and Artio Global, the former Julius Baer, are two of the biggest foreign institutional investors on the local stock market.

Romania is a key market for MEI, which invests in the country through three of its funds: MEI –Roemenie en Bulgarije Fonds, which buys shares in listed companies, and Middle Europe Opportunity Fund II & III, private equity funds. The trio has invested in 30 Romanian companies so far, including Prospectiuni, a provider of geological and geophysical services, in which the fund owns 6 percent. MEI also holds an 8 percent stake in gas-pipe transmission network contractor Condmag, as well as a 10.5 percent participation in electrical cable producer Iproeb Bistrita.

“With approximately 70 percent of the investments from MEI-RBF made in Romania, it is easy to link the performance of the fund with the performance we have had here. For 2009 we had an increase of 19.4 percent in EUR terms, and a yield of 8.2 percent in January 2010. The total value of the fund is approximately EUR 23 million,” Cristian Fader, director of MEI Romania, told BR.

In the future, he expects larger inflows, after seeing improved investment sentiment towards the countries in the region. “Having a focus on the region, all of our investments will be dedicated to improving our portfolio and our assets-value growth strategy. However, managing listed funds as well means that with the visible improvement of sentiment towards these countries, our inflows are expected to be larger – although we cannot predict an exact sum,” says Fader.

The fund is now looking for companies that are posting strong results, a solid balance sheet, good management and good growth prospects in their respective markets.

For the moment, MEI is focusing on strengthening the companies it has invested in. No exit is foreseen. “This means having a better grip on the financial structure and management, as well a better view of operational efficiency. Our investments are mid- and long-term, so we don’t expect to exit any business this year,” adds Fader.

Artio Global, through Artio International Equity Fund (formerly knows as Julius Baer), invests in stock exchange-listed companies. Besides putting money into blue stocks like BRD, Petrom and Banca Transilvania, the fund invests in Rasdaq-listed firms, such as Dafora, Cemacon and Condmag. It also buys shares from the five SIFs. According to its most recent financial report, released in October last year, its Romanian stock made up a mere 0.8 percent of its net assets.

NBGI Private Equity is looking for potential investment targets in the food industry, services – excluding financial services, FMCG, energy and environmental projects. “In general, we are looking for business in which the added value is bigger. There are no strict budgetary limits for investments in Romania. In total, for South-East Europe we have around EUR 350 million to invest,” Valentin Cudric, investment director with NBGI Private Equity in Romania, tells BR.

It is too early for an exit from Romania for NBGI, as it made its first investment in the country just 16 months ago, in an industrial park in Arad. Moreover, “the current economic environment is not favorable to exits,” says Cudric.

How much would a fund be willing to pay for a Romanian company nowadays? “It is hard to say, as it differs from one sector to another and depends on the company’s profitability. As an orientation figure, I would say around five-six times the company’s EBITDA, but it is possible for the multiple to be bigger, for very attractive companies,” Cudric explains. By comparison, in 2007 and in 2008, EBITDA multiples reached 10 or even 12 for some transactions.

While it is relatively easy to find investment targets, it is harder for the buyer’s and seller’s hopes to both be met. “It is difficult to match our intentions to those of the sellers. Some of them still have price expectations identical to two years ago, although their companies are facing serious difficulties,” says Cudric. “There are also cases in which sellers are willing to drop prices considerably, but unfortunately, these are desperate cases when they are trying to save their company from bankruptcy,” adds the NBGI representative.

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