There is no ‘optimum’ time for acquisitions, say investors

“It is not a good period for acquisitions as long as the word ‘crisis' is heard at the negotiation table,” Tiberiu Pop, GM of Corsar Grup (the firm which runs www.cel.ro online retail store), tells BR. “Ninety-nine percent of online sales were due to financial problems or sales dropping below the limit at which they could provide the necessary cash flow to run the firm.” Pop adds that many small stores closed right away or entered into insolvency since their turnover was too small to make them worth taking over. “The desire to sell exists (…), the problem is there are no buyers,” he says.
Marius Ghenea, president of FIT Distribution, also says there is no such “optimum” time for acquisitions. “Even though it is said that the evaluations of target companies are currently lower than in a balanced situation, let us not forget there are also risks involved in such an acquisition during a period of crisis.” He adds that the only tangible advantage is that in such a time, the partners are much keener to make a deal than in a time of economic growth, when entrepreneurs often miss excellent exit opportunities for subjective reasons such as ego or a poor evaluation of the offer made by investors “We want to continue with our takeover strategy. We are already in talks with several online stores who could be interested, so in H2 we will announce probably one or two transactions,” he says.
Ghenea founded FIT Distribution in 2002. “We do not release quarterly figures but the turnover increase compared to last year is so far 35 percent,” he says. The firm is continuing “its initial consolidation and expansion/diversification plan” through online acquisitions and opening new online stores. “Aside from these developments, I have personally formed partnerships with other entrepreneurs interested in e-commerce, with whom I've launched or developed other online stores such as FashionUp.ro, which, a month since launching, has become one of the top online fashion stores in Romania,” says Ghenea.
In February, FIT Distribution bought the domain www.24pc.ro, which in 2008 was one of the top 20 e-commerce sites specialized in IT products. The next month, it bought www.shopIT.ro, also active in IT. ShopIT.ro was founded in 2004. In 2008 it had online sales of about EUR 4 million and nearly 40,000 customers. More recently, FIT Distribution launched online toy store www.ToyFun.ro, with which it aims to obtain 35 percent of the online toy market over the next 12-18 months. The firm also wants a turnover of EUR 450,000 by year-end. It said EUR 200,000 would go into the site in its first year of activity.
Firms that could interest FIT Distribution are “first of all those with online activity in the same domain as our existing online stores (especially IT, but we do not rule out consolidations in electronic home appliances, toys or children's products),” says Ghenea. They must have significant activity on the market so a consolidation through acquisition boosts the volume of the business and optimizes costs, he adds.
For now, the firm is looking at possible acquisitions only in Romania. Foreign companies are not attractive since there are no “cross-border synergies.” “We believe the synergies that are clearest and easy to use in a consolidation exist with firms on the same relevant market, in the same territory or country,” says Ghenea. He foresees that the online retail market could reach about EUR 300 million in 2009 from EUR 225 million in 2008.
One transaction that did not go through was the takeover of www.cel.ro domain by Romanian American Enterprise Fund. RAEF representatives announced in May that negotiations were underway for the takeover of a major share package, but the deal fell through.
“We want a partner to actively participate in the business, not a creditor. RAEF would have contributed to the finances, organization and control but less so with e-commerce expertise which was what we were most interested in. Plus, the sum we would have made now was much smaller than if we wait several more months,” Tiberiu Pop, GM of Corsar Grup (which runs the store), tells BR. He evaluates www.cel.ro at about EUR 4 million. In H1, www.cel.ro posted a turnover of nearly RON 20 million “and by the end of 2009 we believe we will reach RON 46 million.”
“We have received multiple proposals, including one from NCH Capital, but due to changes on the market, we believe it is better to wait until it stabilizes. I believe the fall elections will greatly influence the economic situation. I also believe the turnovers of the competition have dropped a lot so the classifications made last year will change, giving us a better position regarding a potential investor,” says Pop. Without a suitable investor, Pop says the firm will continue with the strategy it set at the beginning of the year, trying to invest a higher percentage of profits into marketing. “The inclusion of an investor in the shareholding structure of Cel.ro is not a compulsory step. We are not talking about a similar situation to that of eMag.ro since Cel.ro does not have bank loans or debts forcing our hand. This move was seen as a way to close the gap between us and number 1, not to escape bankruptcy.”
In April, another local company that has been an active buyer this year, Asesoft, announced it had taken over a 51 percent stake in online retail store eMag. The value of the deal was not made public. “eMag represents under 10 percent of Asesoft sales,” said Razvan Zieba, executive manager of Asesoft, in a press release. Previously, the firm had taken over the indirect distribution division of Flamingo International for an undisclosed sum. “Through this acquisition we will increase our business this year even though the market will drop, so we are in the framework as far as fulfilling our targets is concerned,” said Iulian Stancu, GM of Asesoft Distribution.
According to the daily Business Standard, Asesoft is interested in any new takeover opportunities that might appear and has budgeted USD 3 million (EUR 2.1 million) for acquisitions in H2. However, when contacted by BR, Stanciu said that company officials had not released any such figure.

By Otilia Haraga
otilia.haraga@business-review.ro