#Innova #bag #money #investments #Puls #Biznesu
“We want to raise a maximum of EUR 350 million,” Krzysztof Kulig, senior partner of Innova Capital, said in PB in autumn 2022. One of the region’s largest players in the private equity industry, operating since the mid-1990s, began looking for investors for the seventh fund, despite the bad economic situation caused by the war in Ukraine. He just finished and has more money to spend than he expected.
— Ultimately, in 18 months we raised EUR 407 million, which means we exceeded the original goal of EUR 350 million and the original hard cap [docelową maksymalną wielkość funduszu — red.] at the level of EUR 400 million. This is also a record amount for us collected in one fund. From the perspective of a player from Central Europe, it is a success: in recent years in Western Europe, where the geopolitical risk is lower, funds are collected on average longer and rarely reach a hard cap. We have already invested some of the money, but we still have over half of the capital left to invest. As before, we plan to buy 3-4 companies a year, spending EUR 25-50 million on the transaction, says Krzysztof Kulig.
Innova raised the previous fund in 2018 and it was worth EUR 271 million.
— There are two reasons for the good results in collecting the last fund. Firstly, a strategy that works in difficult times – despite various market turmoil, our portfolio companies coped well with the challenges. Secondly, in recent years we have provided investors in our previous funds with a lot of cash, including: thanks to exits from previous investments, such as Inelo, and our results were much better than the industry average – says Leszek Muzyczyszyn, senior partner at Innova.
Capital donors
The largest amounts of money were added to the new Innova fund by institutions specializing in supporting development investments – the EBRD and the European Investment Fund.
— Polish investors, including PFR, are responsible for approximately 20 percent. the amount collected in the new fund. This is the best result in our history, although still low compared to, for example, Western Europe. It is standard there that domestic investors provide at least half of the money to private equity funds. In our case, this relatively low share is mainly due to the fact that pension funds do not invest in this asset class despite the high rates of return generated by private equity funds – explains Krzysztof Kulig.
However, the wealthiest Poles are increasingly interested in investing in private equity funds.
— Polish capital plays an increasing role in financing funds through offices responsible for investing family assets. However, the group of people who qualify for such investments is still relatively small – we have certain statutory restrictions and we do not accept investors if their involvement in our fund would constitute too large a part of their assets – explains Krzysztof Kulig.
Shopping fever
In terms of investment, Innova and its portfolio companies have had a very intense few months. Since last spring, 11 companies have joined the portfolio directly or indirectly. The fund purchased majority stakes in the Romanian-Belgian EMI, which installs and services gate systems, the Polish e-sports store R-Gol, Netopia, which handles online payments in Romania, and also – together with Bogdan and Elżbieta Kaczmarek, known from the Com40 group producing furniture and mattresses. — the Polish part of Pfleiderer, separated from the German group producing wood-based panels.
— We formally finalized the purchase of Pfleiderer in April. This is the so-called carve out, i.e. taking over the local operations of an international player who changes its strategy. We have already completed several such transactions in the past, including: investing in ACE, Libet and the WP group. Now there may be more transactions of this type on the market, because the economic downturn encourages corporations to review their portfolios, says Andrzej Bartos, senior partner at Innova.
This year, the fund also acquired minority stakes in two Polish companies: CloudFerro, which provides cloud solutions for the space sector, and Dimark, which produces airport baggage handling systems.
— As a rule, we prefer investments in majority stakes, but we also allow minority transactions if the companies have good prospects and we have a consistent strategy with the founders. In this case, we entered growing Polish businesses that generate most of their revenues outside Poland – CloudFerro gives us exposure to the growing European space sector, while Dimark benefits primarily from the investment boom in Asia and the construction of new airports in that region – explains Leszek Muzyczyszyn.
Portfolio companies also went shopping. Kosmetyczna Bielenda first took over the Tołpa brand, and in February this year Kanani Europe, the owner of the Miya Cosmetics brand. Quickly after entering Innova’s portfolio, EMI absorbed another Romanian company – Kadra, and Prime Label, a label producer, bought the Pegwan printing house.
— As part of the sixth fund, we bought 9 companies, which then made 25 transactions. This shows how important an element of our strategy is the consolidation of the industries we enter, says Andrzej Bartos.
Recovery on the horizon
Innova was active over the last year, but in Poland – especially at the end of 2023 – there was definitely no bull market in terms of the number and value of mergers and acquisitions. As Paweł Bukowiński, managing partner in the strategy and transactions department of EY Polska, recently said in PB, transaction processes take longer and a smaller percentage of them end with the signing of a contract. The disruptions caused by the war in Ukraine, high inflation and rising financing costs mean that sellers’ expectations do not match investors’ valuations.
However, this year has started well on the market and experts expect recovery, especially in the second half of the year. Innova counts primarily on entrepreneurs who want to further develop their business.
— With interest rates on investment loans reaching 10%. more and more entrepreneurs are starting to think that it may be worth reaching for slightly more expensive capital from a private equity fund, and at the same time, apart from money, attracting an investor who will help to significantly increase the business. We do fewer 100% buyouts than funds on mature markets, and we enter companies more often to develop them with their creators over the next few years, says Krzysztof Kulig.
The fund, which still has plus or minus one billion zlotys to spend on acquisitions in the coming years, does not expect to maintain the transaction pace of the last twelve months, but declares that it is possible to carry out three-four acquisitions throughout 2024, not counting purchases made by portfolio companies.
— The companies we are looking for must fit at least one of the four slogans: consolidation, international development, digitalization and sustainability. We are looking for acquisition targets in various industries because we need to have companies with a diversified risk profile in our portfolio. The preferred industries are financial services for business, industry, consumer goods and technology, says Leszek Muzyczyszyn.
Wallet for sale
Simultaneously with the purchases, Innova will look for buyers for the companies purchased under the sixth fund. For now, it has sold one – at the end of 2022, the Czech Eurowag bought the Inelo telematics group from it in a transaction worth over EUR 300 million.
— In Western Europe, in recent years, private equity funds have often sold portfolio companies to subsequent, slightly larger funds. For the most part, we still manage to sell to industry investors who are willing to pay a higher premium. They are still very active in Central Europe, because the entire region, and Poland in particular, is becoming a beneficiary of the nearshoring or friendhoring trend. Investors are simply looking for a foothold in Europe, and Poland’s additional advantage is its absorbent internal market, says Andrzej Bartos.
There are still eight companies left in the portfolio of the sixth fund. The oldest investments are the Oshee beverage group and the Prime Label label producer, created thanks to the merger of several Polish companies from the industry under the wings of the fund.
— Most of the companies in this fund’s portfolio have already achieved the expected increase in value and in this sense are ready for monetization. Over the next year, we will definitely work on exiting several investments, says Leszek Muzyczyszyn.
In the past, Innova exited its investment several times through the Warsaw Stock Exchange. Now, however, it does not intend to deliver newcomers to the market where only Murapol has conducted a successful initial public offering in more than two years.
– Currently, there are no public offerings due to the weakness of the market, which is a pity, because under normal conditions it is always an alternative path to exit the investment – says Krzysztof Kulig.
