The Polish private equity fund Innova Capital, founded by an American and an Englishman, intends to buy at least three Romanian companies in the following two-three years and to attract interested foreign firms in the transactions they do in Romania.

More and more private equity funds are buzzing around Romanian companies, but not for all of them then national companies constitute the stake of the entire business. For Innova Capital, for example, one of the private equity market leaders from Central Europe, Poland remains the business core, but they are also keeping their eyes wide open on Romania, without missing the opportunities in Hungary and the Czech Republic. In an exclusive interview for Money Express, Steven Buckley, one of the founders of Innova Capital is speaking, for the first time in a Romanian publication, about how attractive our market is for the investment fund which he started in 1994 together with his Scotish partner Robert Conn. Buckley (American) and Conn started this fund in Poland, country that knew a fast economical growth immediate after joining the European Union in 2004. From the beginning, Innova Capital concentrated their investments on the service area, in finance, telecommunications, or auto parts for the car industry – area that concentrates even now a big part of the investments. More specifically, 24% of the investments are in consumer services, 32% in financial services, 26% in TMT, and 4% in other types of services. The biggest amount of money, meaning 59%, are used for buyout operations (Buying stocks in a company in order to concentrate the shareholders), while 22% of the investments go into start-ups.

“It is true that Romania does not constitute, in this moment, a primary target for Innova Capital, but we are prospecting this market since four years ago”, said Steven Buckley. And the result was two bid business deals here: in 2005 Innova Capital sold Orange Telecom to France Telecom, and the spring of last year bought from another private equity fund, Oresta Ventures, 85% of the water-cooler distributing company “La Fantana”, active also in Serbian Republic. Innova Capital paid for the majority of the shares up to 34 million euro, using its newest fund, Innova 4, valued at 228 million euro. Using Innova 4 investments shall continue in Central Europe and in west of the continent, in countries such as Germany. Through the four investments funds held until now (Poland Partners, Innova/98, Innova/3 and Innova/4), Innova Capital manages together 500 million euro and “ we expect this value to double next year, together with the start-up of the fifth fund, Innova 5”, says Buckley. Using the last fund, investments shall be made also in the region. Presently, Innova Capital directs 73% of its investments to Poland, and only 12% to Romania. Investments in other Central European countries represent 15% of the total value. The biggest profit distributed to the investors in the last three years, was obtained last year, in average of 215,6 million. In 2005, investors received in their accounts 167,5 million euro, and in 2006 only 60.8 million euro. The polish fund ensured the profit by selling some of the companies owned.

The question is why Innova capital only made two deals up to now in Romania, when more and more private equity funds entered this market, some of them investing considerable amounts in real estate, where return of investment is considerably? “let’s say we are cautious” says Steven Buckley. He explains that it is not the instability of the Romanian economy that influenced him to have a reserved behavior. “We believe that we can make good investments in crisis situations”, says the manager adding that the investment fund targeted countries that have no hope of joining the EU, such as Moldova. Innova Capital has a clear target, consisting of transformation of the companies in regional market leaders able to compete with the best in their fields. This is why they carefully select the companies that they invest in. up until now, over 30 companies developed with the help of the funds from Innova Capital, the value invested in each company ranging from 5 to 40 million euro. Usually, the exit takes place after 3-5 years.

Steven Buckley says that Romania shall become important on the investment chart of the fund in the next two-three years, and then 20%-30% of the total value of the investments shall be there. Innova Capital intends to acquire at least three local companies, as Buckley is commenting, from the fields of construction materials, automotive industry, telecommunications, and financial services. For these investments a separate fund shall not be started, the manager mentions. Innova Capital is targeting medium size companies, unlisted, with revenues less than 20 million euro. “There are situations in which a listed company has financial problems and then we can help in re-balancing it” says Buckley. The Polish fund does not only resume to search for profitable companies in a certain country, but is trying to make them known to foreign companies eager to do business in Central Europe. Steven Buckley says that there have been discussions with some companies, interested in entering the regional market, this implying Romania. “We have a company in Poland that is producing electricity generating equipment. Deals could be made in Romania in this field”, underlines Buckley a potential business. Companies are from the United States, France, Germany, and Italy. “Americans are interested in entering these markets, meaning Slovak republic, Czech Republic and Romania”, the manager is exemplifying, admitting the fact that our country is on the second place after Poland, or on the third after the Czech Republic. But, until closing new transactions in Romania, Innova Capital managers are busy extending their contacts with local managers and entrepreneurs. In a successful business, money are only half, the other half are people, believes the manager.

Even if competition on the private equity funds is harsh, and the most feared competitor of Innova Capital is the American fund Advent International, as Steven Buckley confesses, the Polish fund does not feel congested because it has an advantage, the fact that is the leader of the production segment in Central Europe.

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Successful transaction

One of the biggest deal that was done in Europe by Innova Capital, was Automotive Components Europe (ACE)
- In 2005 Innova Capital acquired EBCC, a Polish factory producing aluminum components, from its mother company Valfond, found in a difficult financial situation, intending to transform it in an autonomous supplier for automotive industry.
- In 2006 Innova Capital merged EBCC with the Spanish company Fuchosa.
- In 2007 the fund reunited the two operational units, and ACE (diversified supplier of cast components for the automotive industry) reunites today the best characteristics of the both companies. The Fuchosa management brought new experience allowing the Polish factory (EBCC) to modernize and extend its production facilities. ACE estimates a business figure for 2008 of 86 milion euro and a profit of 8 milion euro.
- Also in 2007 Innova Capital bought 85% of “La Fantana” form Oresa Ventures.