Author: Haluza Ivan, Kukučka Jaroslav
Source: Trend, 8.5.2008, No. 18, page 52

We go only into such businesses that we understand, says Pavol Krúpa, the boss of the finance group Arca Capital. He is a former insurance field-man, whose company has been pushing through among big players in private equity. At the end of last year, Arca Capital administered assets of one and a half billion Slovak crowns. After a few transactions, it now controls property in value of five billion. Besides Slovakia it takes an active part in the Czech Republic and in the Ukraine. In the east, Arca started to seek contacts years ago. While other Slovaks have been looking there only recently, they have there their factories and fund real estate projects.

The property of Pavol Krúpa, who owns more than four fifths of Arca shares, accounts for more than three billion crowns. The rest of the shares are owned by his long-time friend and partner Peter Krištofovič.

What were you doing at the time of the coupon privatization, when through gaining control over investment funds most of the finance groups arose?
Unfortunately, I was sleeping. If I had known what deals there were behind, I would have gone into it for sure. Peter Krištofovič and I were just finishing our studies at university. We gained our first capital by brokering of financial products. The kickbacks from the insurance policies sale we invested into a stockbrokerage. Those were just little deals. We just watched the others and how they were buying up shares for fund consolidation. We were trying to earn something. We just took advantage of the demand of those who had real control over the funds.

How much could you earn on it?
Well, I could live as a student with higher income.

As financial advisers five years ago you initiated the media fight against non-banks.
Were you not afraid of lawsuits with them?
About the unfair design of their operations we spoke without fear. We started to call attention to it in the media after we had thoroughly thought about it and had made an analysis of what the counterpart could do to us.

To harmed clients you offered consultancy in the bankruptcy proceedings. Did you earn good money?
We earned nothing. The aggrieved clients who contacted us were sent to legal practitioners. We just wanted to clear the market for serious products. For ours, naturally, too.

What decided that you took courage to undergo big investments?
I wanted to valorize my money. Banks already knew us as owners of a big company brokering with insurance policies and contractual funds. They were ready to lend us for our new objectives – private equity. We saw that beside already established finance groups we could also grow. By acquiring small and medium-sized companies.

How do you get along with other big investment groups? Have you already competed with them to gain some companies?
Fair. We do not come in touch with them often as they concentrate on bigger transactions. On the contrary, with some of them we do joint projects. For instance, with Milan Fiľo from Eco-Invest we purchased VČE Transformátory, the Czech producer of transformers. And we have been working on other projects. In the Ukraine we want to cooperate with Penta in water-supply and waste management.

With Zoroslav Kollár, the owner of the Czech Zetor company, you bought the spa in Trenčianske Teplice for half a billion crowns and planned other investments.
Meanwhile we withdrew. The spa is now controlled only by him and his co-investors. We agreed that the spa revitalization project will be accomplished only by one of us. Originally, Arca wanted to go into spa industry, but we changed our mind at last. It is not among our priorities any more. Within tourism we specialize mainly in holiday resorts and the hotel industry.

You conduct business with the most influential Slovak businessmen? How were you getting into touch with them at the beginning?
Paradoxically, very easily. We knew each other from the stock exchange, from the time when I was carrying out my first transactions there years ago. Moreover, they are not out-of-reach people. They were willing to listen to my proposals for a joint business, although the amounts of money differed.

Isn’t Arca also a prolonged arm of other rich and influential people?
Naturally, our partners have their say into directing our jointly bought companies. But Arca is led only by me and my managers.

Do you depend on connections with politicians? No big business can usually be conducted without them.
Usually it is like that. But we are interested in small and medium-sized companies that are not much influenced by politics. I myself do not have any friends in politics, with whom I go for a beer and do lobbying for my business objectives.

Haven’t you ever been at a ministry to talk about a regulation, act or intended tender?
No. But we had also some projects when we wanted to explain our intentions to the state. For instance, when we wanted to buy shares of the Czech Spolchemie company from the local consolidation agency. We kept sending our people to meet the officers in charge and present our intentions. But eventually we did not get the company.

However, you are in touch with some former politicians. How did you get together with Jozef Migaš, the former SDL boss, who advises you on business in the Ukraine?
Our common friend advised him to me. We wanted to do business in the Ukraine and he, as the former ambassador to the Ukraine, has many contacts.

What about the business with Stanislav Gross, the former Czech prime minister, who sold you a stake in Moravia Energo? How did you get to him?
We had not known each other before. I was just surfing on the Internet for business news and found out that Stanislav Gross was selling a one-third stake of this energy company. I am interested in this field so I called him to negotiate a reasonable price.

You have been staying in touch with him. Can you imagine a new business with him?
We are in touch, we communicate and we will see whether we will conduct other business together. Sure, I can imagine it.

You have been buying industrial establishments for a few years and their number is growing fast. Wasn’t it a mistake to invest such a big amount at such a pace? Are your crediting banks not afraid?
It is true that we are in the seeding phase now. We buy a lot. But we have already harvested something and got our sources back. After a successful restructuring we recently sold Czech Precision Forge, a Czech engineering firm. After we had reached fourfold revenues up to 0,75 billion Czech crowns. Much money we earned by simple stockjobbing with ČEZ and Unipetrol shares.

You acquired engineering, energy, IT and food processing companies. You are interested in real estates. Isn’t it too much?
We go only into such businesses that we understand. Either we have good people directly in the bought companies, or we buy them from other companies. We overpay them or give them new, better visions.

Who decides about Arca’s objectives?
The final “yes” for a big investment comes from me but only after I get enough good information and advice from my managers. In my opinion, the best management is an enlightened dictate.

What are your strategic business areas?
Real estate. Industrial production, mainly food processing. Then we are interested in IT and the Internet spreading through our Czech company, GiTy, to which we add our Czech on-line shop kasa.cz. With all this we want to expand to other Central-European markets, the Ukraine and the Balkans.

You have recently bought the Marila Balírny company, the Czech producer of coffee, mineral waters and pastries, and the Natura company, a starch producer. You have got Slovak Aqua Group, the producer of mineral waters. Have you been attracted by the food price increase?
We rather want to consolidate several companies in Central and Eastern Europe into one big whole and find a strategic investor for it.

Through the Bio-Skin company you invest into biotechnology. Into the development of skin-covers for plastic surgery you invested one million euros. Is it really possible to earn on it in our conditions? Or, is it only an image matter?
No. We perceive biotechnologies as another strategic business area. We met the Czech scientists, with whom we work on the Bio-Skin project, at the Czech Invest investment seminars and we liked it. In biotechnology we cannot compete with countries like the USA, India and France. But the skin-cover is really unique and we believe in its success.

Your first investments went into development. Will you also produce the skin-covers?
For now, only in laboratory conditions, in several rooms. However, with growing sales we will increase the production and will need to do stronger marketing. We expect to make turnovers in billions once.

Do you have more such untraditional companies?
One for computer games development. Creative Czech programmers came to us and we added our business experience. The games already drew attention of people in the USA and Russia.

You invest into engineering and energy industry. In the Ukraine you allegedly want to build a coal plant for two billion crowns.
We cannot build it alone. We have been looking for a bigger strategic partner. At the same time we have been negotiating with some Ukrainian energy consumers. In energy industry we want to work on development of renewable sources for heat and electricity production. We are interested in biomass and wind-power plants.

Isn’t it a problem in the Ukraine how business interlocks with politics?
When we came there, we had to introduce ourselves to local politicians. You cannot do business there unless the politicians know who you are and what you want.

How did you manage?
A new investor is an alien there. Nobody waits for him with open arms. He brings money, but the Ukrainians do not really appreciate that. They say: we also have enough money and much more. Big engineering companies, mines and metal-works are reserved for domestic investors and rich Russians. We appealed to them by bringing new services that are missing. That is why we can now build logistic centers and residential sites with family houses. There will arise 140 houses for more than 30 million euros near Kiev. And two logistic centers for more than a hundred million euros. The country is interesting for us, but it is necessary to find serious partners there because law enforcement in business disputes is not high.

Do you already have some Ukrainian partners you can trust?
We cooperate with several Ukrainian partners at land repurchase. We need them also to communicate with local authorities so that it does not happen that you acquire land and suddenly you find out you cannot build anything.

Can you do business in the Ukraine without giving bribes?
I do not want to call it bribes exactly, but services around business are much more expensive than in Slovakia. For instance, legal practitioners require 800 dollars per an hour. We used services of a PR agency which took 50 thousand dollars for three weeks of work. The thinking there is: we are a bigger market, we know that you need us, so pay for it.

Is it easier to earn more there?
No, it isn’t. For instance in real estates we have roughly the same profit ratio as in Slovakia.
The lucrativeness of the country is not in higher profit ratio but in the fact that the market is incomparably bigger. Recently, we bought there an electrical engineering company CheZaRa which supplies Russian cosmic programs with communication systems.

Will the locals let you do this kind of business?
We made use of a situation when there were two quarreling co-owners who could not communicate. We introduced them our strategy of further company development and they sold us their stakes. We know this is a strategic company with three and a half thousand employees. We immediately visited Russian customers not to break existing business relations.

What if the company restructuring requires redundancies?
To make the firm working effectively we will have to reduce staff. We are not afraid of it. On the other hand, on the spacious CheZaRa premises we want to start new manufacturing. For instance, we negotiate with a Czech furniture company to start a furniture production there.

Do you want to enter the Russian market, too?
For sure, yes. We will learn how to do business in the Ukraine and then we will go to Russia. My dream is to do business also in China in about twenty years. For now we are interested in, for instance, Romania and Serbia. We have already been there. Business interlocks with politics, so they received us well, because of the Slovak policy towards Serbia, too. We already have Serbian friends.

Finance groups are perceived as ravenous companies doing everything to achieve their objectives. Do you feel like that?
When defending our investment, yes. We have a strong team of lawyers. But on the other hand, if someone is a very tough negotiator, he will not make many deals. Business is always about compromises.

What about your interest in the coffee producer Baliarne obchodu in Poprad? Do you want to take control over it through minor shareholders against the will of the major ones? Are you testing your power?
The company in Poprad as a strong Slovak coffee dealer is very interesting for us. In a situation when one part of shareholders wants to accept our offer and the other part not we are trying to come to agreement with the minor owners. There is no standard major shareholder. Only a director with a one-fifth stake who controls the whole company through the articles. In synergy with Marila we can move the company forward.

Do you get into lawsuits?
Yes, we had some. When you are restructuring a company, you can come across historical disputes and problematic contracts that can be solved only in court.

What about the history of some of your companies? Were you not afraid to take over, let’s say, Moravia Energo from Stanislav Gross. He has not still explained how he got the shares.
It was very sensitive for us and we thought carefully about possible effects on us. Eventually we went into it. We bought the shares from their real owner – Stanislav Gross.

You did not ask him how he got them?
No.

Were you not at all curious?
No. I am a businessman. I just wanted to have confirmed that the ownership was utterly alright and unimpeachable.

Marila seems to be problematic, too. You decided to buy it despite the fact that the alleged co-owner Tomaáš Pitra has been wanted by the police for alleged tax evasion.
We never discussed with him and he was not on the list of co-owners. In any documents. The major co-owner at the negotiations was Milan edivý, the founder of Marila.

What big plans do you have?
We plan to build a big holiday resort in Central Slovakia. We want to go on with construction of new family houses and logistic centers in the Ukraine. We have been working on two new energy projects in the Czech Republic – buying a heat station and building a power plant. These things cost about four and a half billion Slovak crowns.

Can Arca once reach the size of J&T or Penta?
It may become so big. But they will also be somewhere else in ten years.

Can Arca become an acquisition object?
Two global investment banks already wanted to take over our company. To become their general partner for Eastern Europe. Because we have the size they need. Penta and J&T are already too big for them. We did not refuse them immediately and remain in lax talks. I do not want to sell the whole company for sure. I might be attracted by administering investments of a big bank in our region to the extent that I will be allowed to have a say in Arca’s operations.

Pavol Krúpa (36). He graduated from the Faculty of Business Management at the University of Economics in Bratislava. He started his business as a small broker and through All Finance Services he was brokering insurance policies and contractual funds. Later on he founded Arca Capital finance group which invests into real estates, food processing, information technology, biotechnology, engineering and energy industry. Arca’s property is about one quarter billion euros. Krúpa’s long-time partner and friend Peter Krištofovič is Arca’s minor co-owner.