Private Equity & Venture Capital in Central & Eastern Europe
Robert J. Manz Partner Enterprise Investors
September 20, 2005
Enterprise Investors - Overview
• Enterprise Investors is the leading private equity fund manager in Central & Eastern Europe
– Capital: $1.1 billion raised to date in 5 investment funds – Experience: actively investing since 1990
– Regional: investments in Poland, Slovakia, Romania, Bulgaria and Czech Republic
– Track Record: $955 million invested in 100 companies to date – Professional: team of 30 investment professionals; headquarters in Warsaw and office in Bucharest – Active: actively work with investee companies to create additional value, improve corporate governance and build world-class corporations – Sectors: consumer goods, retail, financial services, telecom, IT, manufacturing, healthcare, energy
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Private Equity in Central & Eastern Europe
• • Over €7.5 bln raised to date for CEE private equity funds Approximately 75 fund managers actively investing in CEE companies – 30 can invest in Slovakia
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Since 1990, almost €6 bln invested in over 1,000 companies in CEE
Investment levels are rising each year:
2002 €274m 2003 €448m 2004 €547m
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But, investment levels are below European averages by a factor of 3x
Europe PE/VC investments as % of GDP 0.3% CEE 0.1%
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Source: EVCA, EI estimates
Private Equity in Central & Eastern Europe
• PE/VC investments by CEE country 2002 – 2004 (€1.3 bln)
35%
24% 19%
10% 7% 2% Poland Hungary Bulgaria Romania Czech Rep. Baltics 1% Slovakia
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In 2001, one of the top 5 largest PE/VC transactions in CEE was the $180m investment in Orange Slovensko
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Types of CEE transactions
• Distribution of 2004 Investments Buyouts Expansion Start-up/Seed • Buyouts
– – – –
61% 38% 1%
MBO/MBI – purchase of company with current or outside management Secondary Purchase – purchase of shares, no special cooperation from management Public to Private – purchase of quoted company
Examples: entrepreneur’s exit, spin-off, ownership change, privatization
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Expansion Capital
– –
Capital increase to finance development/growth/turnaround
Examples: new production capacity, new products, debt re-payment, acquisitions/expansion
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Start-up/seed
– – Financing for companies at an early stage of development Examples: R&D, bring first product to market, cover initial losses
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Case Study – Lukas (Poland)
Pre-investment:
– Developed by 3 entrepreneurs – Started as chain of electronic stores – In 1992 started offering installment loans
– Became intermediary offering consumer financing with funding from banks
– By 1997 present in 16,000 retail outlets nationwide – $285 mln of loans; revenues of $19m; net profit $7m; 600,000 customers
Investment:
– Enterprise Investors provided $15 mln of expansion capital for 28% of shares (1997) – Founders sought EI’s prior banking experience and contacts – Allowed founders to maintain independence and control of the company
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Lukas - continued
Development:
– Goal was to transform Lukas into an integrated personal finance banking institution
– EI identified a small bank and helped Lukas acquire a controlling stake
– EI brought in specialized banking managers and new financial management – A new banking strategy was developed, rolling out 100 modern mini-branches, telebanking and e-banking – Products were diversified to include cash loans, car loans and retail deposits – Importantly, Lukas developed its own funding base with $700 mln of deposits
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Lukas - continued
Performance ($ mln):
Revenue Net Profit $100
$19 $7 1997
$10 2001
Value Creation:
recognition
– Lukas became a leading nationwide retail financial institution with household brand – By 2001, international institutions were very interested to take over Lukas as an entry into Poland (more than 30 interested buyers) – Credit Agricole purchased EI and founders for a total value of $340 mln, 5.6 times the 1997 valuation
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Case Study – Comp Rzeszów (Poland)
Pre-investment:
– – – Small but growing provider of banking software 50% owned by Comp S.A., leading Unix-based IT systems integrator Separate management organizations for both companies
Investment:
– – – EI invested $5.2 mln of expansion capital for 55% of Comp S.A. in 1999 Comp interested in EI’s IT experience and company development know-how New capital used to develop new products (eg. encryption technology) and acquisitions
Development:
– Comp Rzeszów developed quickly in banking software products • 17% overall market share in banking segment • 35% market share of cooperative banks • 45% market share of small and medium size banks – – Product development into transaction systems, electronic banking, date warehousing, outsourcing Regional expansion to Slovakia (Asset Soft)
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Comp Rzeszów - continued
Performance ($ mln):
Revenue Net Profit $30
$4 $0,2 1997
$4 2004
Value Creation:
– EI designed and negotiated separation of the two companies; became 50% owner of Comp Rzeszów – EI helped analyze acquisition of Asset Soft – IPO on Warsaw Stock Exchange (Sept. 2004) led by EI to raise capital for acquisition – IPO allowed founder to sell small portion yet retain effective control; EI exited fully – Most successful private company IPO in 2004; 10 times oversubscribed – Valuation of $101 mln; 25 times 2004 net profit; 20% premium to Polish IT companies – Post IPO, Comp Rzeszów making more acquisitions, valuation now $134 mln
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Ďakujem
Robert J. Manz Partner Enterprise Investors Sp. z o.o. ul. Emilii Plater 53 00-113 Warsaw, Poland e-mail: robert.manz@ei.com.pl www.ei.com.pl