Author: Jarošová Gabriela, Pažitková Martina
Source: TREND, 23.10.2008, No.42, page.24, printed with Publisher’s Consent

Kofola is one of the largest drink manufacturers in Central Europe. In the last half decade, its takings have increased by one-quarter on average each year. In May, it merged with the number three company in the Polish soft drink market, Hoop, two months before it purchased Vinea. In recent months, however, its shares were affected by the global financial crisis. Their value, compared to last October, dropped to half of its value. Polish private equity group Enterprise Investors took advantage of this, making a generous offer to its stockholders at a premium of almost 50% (although the total price is still lower than that at October 2007). When markets are dominated by panic and governments spend billions of Euros to stabilise them, private equity companies are on the alert. At times of crisis, someone loses and someone makes a profit. Slovak groups, including Penta and J&T, know this and they plan to use it to their advantage.

More visible goals?
At times of crisis, the value of publicly traded company depends, more than at any other time, on market sentiment. Negative expectations and worries affect stock prices much more than the real results of the company. An investor that doesn’t have a problem with liquidity doesn’t think too much about whether to buy a company with growth potential. The most decisive is the shock effect: to acquire it as cheaply as possible and before competition arrives. Naturally, the acquisition of listed companies represents, for Slovak and Czech private equity companies, a smaller part of their business. For example, Arca Capital has only rarely invested in such trades. And they are not specifically motivated to do so by turbulence on stock markets either. “Nobody can predict how markets will look in two months,” financial manager Rastislav Velic explains. Entrance, according to him, represents an unnecessarily large risk.

It is not only volatility on stock markets from which private equity groups will benefit. They will also make profits on non-listed companies. Markets will dispose of uncompetitive companies, whether their problem is an absence of innovation, ineffective management or excessive debt. These goals were attractive to investors even before the crisis broke out. For example, Arca, which managed assets valued at €125 million last year, chose the Ukrainian company CheZaRa. Most of its production comes from the manufacture of sensors for communication and safety systems in the aerospace industry and the civil sector. But the portfolio also contains some specialities, such as radios, safety locks and laundry pegs. “It was a carry-over from some quite wild management, following which there is a large area left for restructuring and improvement of production,” Mr Velic believes. Moreover, CheZaRa owns large amounts of land, part of which Arca may rent out to other investors. “It was too attractive to leave out,” said Mr Velic.

Crises can even speed up and strengthen the effect of low competitiveness and need for consolidation in some sectors. Worsening access to loan sources will increase the pressure on the management of companies, as well as worries from recession, which might hit sales. But the value of companies will go down as well, because consumers will lower their expectations.
“Crisis, from an investor’s view, doesn’t only bring losses, but also above average profits,” says Mr Velic. That is the reason why Arca considers entering sectors that have not previously been covered. On the other hand, he admits some wariness: “We are working on some projects but we are not rushing anywhere. We will wait for two or three months to see how the situation will develop.”

Changes in Russia?
The extent to which Slovak and Czech investment groups will feel the impact of the crisis depends on the sector in which they operate. The highest impact is on cyclical sectors, such as the building and automotive industries. However, this does not apply to all countries to the same extent, as Ivan Jakubek, the chief of the Bratislava Branch of Enterprise Investors, suggests: “Even though building activity in Slovakia may drop, this is not the case in Romania.” Czech private equity group PPF, which manages assets valued at €8.8 billion, has already felt the negative side of the crisis, as it is active directly in the financial sector. It had to change the business of Russian Home Credit as that company had stopped providing mortgages and loans towards the purchase of cars due to problems with the risky company bonds that are used to finance these operations. Now it will only focus on more profitable products, such as credit cards and cash loans.

You can read the full article here: http://www.etrend.sk/ekonomika/svetova-ekonomika/kriza-praje-financnym-zralokom/147009.html