Suspending transactions due to an economic crisis or a pandemic is not the hallmark of an experienced professional. In 2020, in the midst of a pandemic and an economic crisis, the Black Sea Fund completed two transactions with DigiRay and Theta using a structure that would not take advantage of entrepreneurs, but would allow them to recover possible valuation losses suffered as a result of the crisis, said Matei Păun, co-founder of the investment fund.
Matei Păun: “A good fund manager finds equitable solutions around possible risks during a crisis. Stopping and waiting for a particularly difficult moment to pass is a disservice not only to the entrepreneur but also to one’s investors. Doing nothing robs everyone of potentially great opportunities.”
The recent pandemic is clearly a temporary and finite phenomenon, unlike the crisis of 2008, which did not necessarily have a clear time horizon. In 2008, when it started, no one knew if it would last six months, six years, or 20 years. Instead, regarding this pandemic, there was sufficient scientific consensus that indicated from the beginning that it would be unlikely to drag out for more than two years. So the pandemic had this critical quality of having a palpable end. Even if initially difficult, we maintained our idea that even in the middle of the crisis, there are opportunities.
A structure that allows entrepreneurs to regain the value eroded by the pandemic
Thus, we completed two transactions based on the 2020 figures but with a structure that would allow those companies to make up the value eroded by the pandemic. We found ways to not “penalize” the entrepreneurs for the results affected by the crisis. Perhaps many would have expected us to take advantage of the context, to squeeze the entrepreneurs; perhaps some of them thought that 2020 would be the perfect time for investment funds to take advantage of entrepreneurs battling a crisis. But we didn’t look at 2020 in this way and we didn’t act in this manner. Instead, we strived to create a win-win transaction for everyone, ensuring a long-term alignment and a sustainable balance between entrepreneurs and investors. Only this would allow us both to seize opportunities and aim for success.
The discussions with DigiRay began just before the pandemic, in January-February 2020. The founders of DigiRay are a young, very serious, and hardworking couple from Zalău, which have successfully grown this business across Transylvania. Moreover, we were attracted to, and comfortable with, the dental sector due to our sister company’s (BAC) experience in brokering the sale of DentEstet to MedLife and Dentotal to Abris Capital.
Dentistry – one of the most fragmented economic sectors
On the other hand, dentistry is among the most fragmented economic sectors, with around 17,000 dentists and approximately 12,000 dental clinics. We had looked at several opportunities in the dental clinic segment, but in the end, we thought it would be smarter to approach the sector through the imaging side. This niche is less fragmented and it is far easier to take 30% of the imaging market than to reach the same percentage via clinics. To take 30% of the latter we would have to make transactions with hundreds or even thousands of clinics, which is completely unrealistic.
Two key moments marked the transaction with DigiRay, as in every transaction: reaching a consensus on the company’s value and the sum of money needed for its development. To achieve that, we created a structure that allowed us and the entrepreneurs to look past the immediate negative impact of the crisis. The alternative would have been to wait for the pandemic to pass, but that would have meant wasting huge opportunities and precious time.
Companies will need fit-out services even in difficult times
In the transaction with Theta, we used the same adjustment mechanism that allowed us and the entrepreneur to move forward in this challenging context. We considered that even in these difficult times, companies would need fit-out services, albeit perhaps for different reasons. Most have reorganized themselves, for example, on the work-sharing model. This is true for any business. Some businesses are relocating or changing the way they work. The only real problem for Theta would be if everything were to suddenly simply freeze. But as long as there’s a dynamic in the commercial real estate sector, the direction is less important.
Black Sea Fund, as a company, adapted quickly and easily to the lockdown and the new way of doing business. For a long time already I had a strong digital approach, with many online conferences and e-mails. Obviously, initial physical contact is necessary and helps a lot in the development of the relationship, but, overall, we managed to complete two transactions in a very virtual context”.