Taking advantage of the market
Businesses that exploit the booming market continue to be top targets for venture capitalists, argues Cornel Marian, investment manager at Swedish investment company Oresa Ventures
Most private equity investments are betting on the growth in the Romanian economy and are looking to finance companies that benefit from this development.
Investment companies such as ours like business services. This takes into account companies who provide services and goods to the local market, including construction materials, health-care, financial services and retailers. For example, we recently invested in Poland in accounting and trust services, human resources, recruitment and training companies.
There are also quite interesting opportunities in real estate service such as in evaluations, transactions and real estate project management. This includes investors in real estate who will need to maintain the properties while they are away – and undertake basic management activities such as collecting rent or changing light-bulbs. This demand will increasingly need more specialist agencies.
The impressive investments through the line in the automotive sector, such as Ford’s recent purchase (pending the European Commission’s approval) of the former Daewoo Factory in Craiova, Dolj county, and Renault’s ongoing investments in the Logan car brand in Pitesti, Arges county, will continue to attract more car component suppliers. Companies that came to Romania five years ago from western Europe or the Far East making cabling for cars now have sales of over 200 million Euro. This sector will continue to rise.
In the past five years in Romania private equity made money in telecom, such as in the mobile phone operator brand Connex, owned by Mobifon, which was bought out by Vodafone in 2005 and cable company Astral Telecom, which was sold in 2005 for 335 million Euro to US operator UPC. In telecom investors have poured in hundreds of millions and made billions.
There have also been high margins in industries such as financial services, where BNP Paribas’s consumer credit arm Cetelem bought out Romanian-based counterpart Credisson in 2005 and in 2006 GE Money in one package bought leasing company Motoractive, consumer finance entity Estima Finance and mortgage loans company Domenia Credit for 140 million Euro.
All financial services continue to be interesting.
Pharmaceuticals has also offered effective returns in the last three years.
In 2007 there was a lot of mergers and acquisitions activity in every sector. This included movement in the banking and financial services, real estate acquisitions and business services. Retail is also attractive following Enterprise Investors’s sale last year of its chain of supermarkets, Artima, to Carrefour.
In IT and Internet companies in Romania, little has been invested in these businesses and the returns have not been large. This could be an area where higher value could be made in the future.
Private equity still waiting
From a private equity perspective in 2007, there was more talk than action in the sector.
In the EU, Romania is not number one, but is in the top three in the attention of international private equity firms. In many areas, it takes time to identify the best deals before such a firm will make an acquisition.
On a weekly basis, I talk to people wanting to invest in funds. We have monthly calls from big money managers who want to invest in Oresa Ventures or large private equity firms who want to co-invest in projects in Romania.
Private equity firms have shown a high level of discussion and enthusiasm for businesses in Romania, but deals of this scale do take time. The rate of interest to execution takes from eight months to one year.
In the next one or two years we will see this enthusiasm transforming into real deals.