Estonia: Rise And Shine 2010

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Presentation by Peeter Saks, Baltcap

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Estonia: Rise And Shine 2010

  1. 1. Investor’s point of view about investing in the Baltics BECC, Rise and Shine Estonia PEETER SAKS, Managing Partner, BaltCap YOUR PRIVATE EQUITY PARTNER IN THE BALTICS ESTONIA Tartu mnt. 2, 10145 Tallinn, Tel +372 6650280, Fax +372 6650281 LATVIA Ulmana gatve 86F, Rigas raj, LV-1046, Tel +371 67214225, Fax +371 67356 395 LITHUANIA J.Jasinskio 16B, 1112 Vilnius, Tel +370 52546713, Fax +370 52546978 www.baltcap.com
  2. 2. Leading Private Equity Firm in The Baltics • Actively investing since 1995 • Offices in all three Baltic countries, team of 12 investment professionals • Focused private equity strategy LITHUANIAN PRIVATE EQUITY & • €150m in five fund generations, 39 investments, 24 full exits VENTURE CAPITAL ASSOCIATION • Management buy-out in 2007, 100% owned by the partners • Solid investor base (EIF, EBRD, SEB and Swedbank pensions, other Nordic and European financial institutions) • Founding member of national private equity associations in Estonia, Latvia and Lithuania Finnish team + Baltic offices & teams Management moved to MBO, BaltCap team local advisers established Baltics, new team fully independent established in Lithuania 1995 … 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1995-1997 2000-2001 2001 2007 2010 Baltic Baltic Baltic BaltCap JEREMIE initiative Investment Investment SME Fund Private Equity SME funds in Latvia Fund I & II Fund III €13.8m Fund and Lithuania $25.0m €36.1m €63m Target sizes: €30m in Latvia, €20m in Lithuania 1
  3. 3. Objectives and Strategy Focused mid-market Buyout of existing shares approach Expansion financing, buy and build Investment Equity investment size €3-10 million Strategy Rigorous evaluation and due diligence Majority or significant minority positions Active involvement in management via board and council memberships Clear and defendable core competence Companies with Strong end-consumer component or export capability Professional and experienced management Consumer related businesses (4 deals done) Selection B2B (5) Criteria Manufacturing (6) Industries of interest ICT, Media (4) Construction (1) Healthcare (2) Energy (1) 2
  4. 4. From Highest Growth to Steepest Decline 2005 2006 2007 2008 2009 2010 • Unbalanced growth of Latvia Estonia 10,6 10,5 11,9 11,4 9,6 8,7 -4,6 -3,6 -13,1 -10,3 -3,2 -0,8 2005-2008 was the reason Slovakia 6,0 8,3 8,5 6,4 -2,6 0,7 Lithuania 7,6 7,5 7,3 3,0 -11,0 -4,7 for the depth of the current Romania 4,1 7,7 6,7 7,1 -4,0 0,0 crisis in all Baltic countries Bulgaria 6,2 6,1 6,1 6,0 -1,6 -0,1 Poland 3,5 6,1 6,1 5,0 -1,4 0,8 Ireland 5,5 6,0 5,0 -2,3 -9,0 -2,6 Czech Republic 6,1 6,1 4,9 3,0 -2,7 0,3 • Baltics were “out of sync” Slovenia Sweden 4,0 2,9 5,2 4,4 4,3 3,8 3,5 -0,2 -3,4 -4,0 0,7 0,8 from rest of Europe by Greece 3,7 4,3 3,7 3,7 -0,9 0,1 enjoying low interest rates Spain Finland 3,5 2,9 3,9 5,5 3,7 3,1 1,2 1,0 -3,2 -4,7 -1,0 0,2 during the boom times Austria 2,0 3,1 2,9 2,0 -4,0 -0,1 United Kingdom 1,9 2,8 2,8 0,7 -3,8 0,1 Netherlands 1,5 2,9 2,8 2,0 -3,5 -0,4 • Current cost-cutting in the Euro area Germany 1,4 0,9 2,7 2,7 2,6 2,5 0,9 1,3 -4,0 -5,4 -0,1 0,3 public sector and tax Hungary France 4,2 1,2 3,9 2,0 2,4 2,4 0,6 0,4 -6,3 -3,0 -0,3 -0,2 increases had worsening Denmark 3,1 3,1 2,3 -1,2 -3,3 0,3 effect on domestic demand Belgium Italy 1,1 0,1 3,1 1,9 2,3 1,9 1,1 -1,0 -3,5 -4,4 -0,2 0,1 which was already suffering Portugal 0,5 1,3 1,8 0,0 -3,7 -0,8 from problems in private sector GDP percentage change on preceding year, Eurostat, Spring 2009 3
  5. 5. Painful Adjustment GDP Growth 15% • Credibility of the region has been 10% 5% damaged, but has started to 0% -5% improve -10% -15% -20% • Instead of devaluation the economy is adjusting via 10% Current and Capital Account Balance, % of GDP reducing cost base 5% 0% -5% • Economy shifting towards -10% -15% -20% tradable sectors and exports -25% show signs of recovery Average Consumer Price Growth, % • Inflation replaced by deflation, 20% 15% but budget deficits require 10% serious attention 5% 0% • Previously high current account -5% deficits replaced by some surplus Estonia Latvia Lithuania • Estonia to join Euro in 2011 * Source: Swedbank Macro Update, July, September 2009 4
  6. 6. Impact of Recession on Sectors Source: Kohlberg & Company 5
  7. 7. Business Environment • Most businesses still suffering • Banks slow to write down bad debts • Fewer than expected distressed sale processes • Valuation expectations of sellers have come down, but future earnings remain uncertain • Limited financing options for buyout deals • Vendor financing possible, but most cases require fresh capital injection • Deals mostly driven by market consolidation 6
  8. 8. BaltCap’s Approach in Economic Downturn • Actively govern the portfolio companies and be consistent in creating and preserving value • Identify any weaknesses as early as possible (management, products, performance) • Seek potential add-on acquisition targets • Keep costs under control and maintain conservative capital structure • Maintain long-term vision • Approach new cases with caution • Construct a balanced portfolio • Focus on defensive industries • Seek market leaders at reasonable prices • “Buy and build” cases • Have clear exit strategies 7
  9. 9. New Transaction – Air Maintenance Estonia Company in Short Transaction Summary • Aircraft Maintenance and Repair Organisation, • Acquired from SAS Tech, auction arranged by SEB located in Tallinn Airport Enskilda • Solid financial performance • Initial ownership 100% • Signed in January 2010 Key Elements • Successful business - AME has run a profitable business with an increasing customer base. 2010 is almost fully booked. • Attractive Industry - MRO industry is going through spin-off and consolidation phase, creating lot of opportunities for exit as well as expanding the business. In Europe market trends are especially beneficial for MROs located in the CEE countries. • Good Location - AME is the only MRO in Estonia. It is well positioned to service airlines in the Nordic area as well as CIS countries. • Strong Team & Management - The Company’s management will continue after the buy-out and share the drive for expansion. • Ambitious Plans & Potential for Additional Investments - The Company has developed several key areas for expansion, including building 2nd hangar and therefore doubling its service capacity. 8
  10. 10. Selected Investments EGeen AS NeoQi INTRAC Quattromed Energate OÜ Interinfo International Group AB HTI Laborid OÜ Clinical research Body care Gas distribution Directory organisation equipment Machinery trade Laboratory services (yellow pages) Entry: 2008 Entry: 2008 Entry: 2008 Entry: 2005 Entry: 2005 Entry: 2002 Koolitööde AS IT Koolitus V&K Holding AS AS Ecometal OÜ Tallinna AS MicroLink keskuse OÜ Pesumaja Software solution Video rental chain Batteries Information for schools IT training recycling Laundry house technology Entry: 2005 Entry: 2003 Entry: 2001 Entry: 1999 Entry: 2005 Exit: 2008 Exit: 2004 Exit: 2006 Entry: 2006 Exit: 2005 A.Le Coq AS Teede REV-2 AS Standard AS SIA Hanzas UAB Zetcom SIA DT Mobile Elektronika Food and kindred Road construction Office furniture Virtual mobile Retail of mobile products production Electronic network phones component production Entry: 1998 Entry: 1998 Entry: 1996 Entry: 2005 Entry: 2003 Exit: 2001 Exit: 2003 Exit: 2004 Entry: 2002 Exit: 2007 Exit: 2006 UAB Daily UAB Voira AB Svyturys AB Snaige SIA Adam Auto SIA V.L.T. Service Food and kindred Production of white Retail of office Retail of products goods Car dealership Moulded fiber supplies children’s goods packaging Entry: 2004 Entry: 2005 Entry: 1998 Entry: 1998 Entry: 2004 Entry: 2004 Exit: 2007 Exit: 2009 Exit: 1999 Exit: 2001 9

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