Author: Jan Štětka, Hana Mášová
Source: EKONOM, 6 May 2008, No. 19, page 18

We receive about fifty investment offers monthly. So far we have given preference to those related to Eastern Europe, says the head of the company Arca Capital.
In one of the most often discussed case of last year, the strange purchase of 30% of shares in Moravia Energo by the former Prime Minister Stanislav Gross, one of the main roles was also performed by Pavol Krúpa and his finance group Arca Capital. The company purchased Gross´ share in the company of Tomáš Chrenko for CZK 100 million. 
Pavol Krúpa believes that it is important to do business where you feel there is one. And for him it is Central and Eastern Europe now. Only in the Ukraine the company has open projects worth € 170 million.

Why did you decide to purchase the share in the energy business from Stanislav Gross? Do not tell me you just watched TV and it suddenly occurred to you: what an interesting case, why not to buy it…
However improbable this may appear this is exactly what it was. I was in the Ukraine monitoring the press. I collected information about what was going on and I noticed the case. I addressed my friends in the business and asked them whether they saw it as realistic or just for show. And they told me that the shares were really for sale. I had the telephone number of Mr. Gross found, called him, we agreed a meeting, and concluded the transaction.

Was the price of the shares the same from the very beginning of the story or did it change in the process?

It definitely changed. Of course the buyer is interested in a certain amount and the seller requires a certain amount. But I think that the final price was a consensus between the two of us.

The one hundred million was somewhere in the middle between the seller ´s and the buyer ´s idea?
Yes. I was asked recently whether I was a hard negotiator. As for defence of the rights of Arca Capital and project, the answer is yes. But as for business negotiations, this may be seen from the number of transactions you agree. The win-win principle must always be adhered to. And even with this policy we arrived at a price convenient both for Arca Capital and for the original holder.

How much Mr. Gross originally wanted to obtain and how much were you willing to pay?
I would like to reserve my answer to this question. But the negotiation certainly was not like a Turkish market. It was standard negotiation with argumentation, no haggling.

Did you feel that Stanislav Gross might be under any time press?
No. When you know the opposite party well, you are better able to assess its arguments in the context of price negotiation. This was purely pragmatic negotiation based on facts. I did not feel any time pressure on his side. I did not feel anything like “I must sign today, give me this price and go away”.

We want adequate value
Do you know how you will deal with the share in Moravia Energo? Don´t you discuss sale of the company with Tomáš Chrenko?
We are a minority shareholder. Strategic decisions are made by the majority shareholder. We agreed to be contributing to the progress of the company, that all acquisitions will correspond to the company growth and we will support them. Banks need conflict-free owners. We have not discussed these maters with Mr. Chrenko so much but we have declared correct business relationship and have complied with the declaration since.

And is there a time horizon within which you would like to withdraw from Moravia Energo?
Our investment horizon is to stay in projects for three to five years. We will plan this investment in a similar manner, even though our staying with the project for a longer time is not excluded. But we may as well react to an offer by the majority shareholder sooner than that. At the moment we are interested in progress of the company.

How much would you like to get for the share in Moravia Energo?
We want adequate value. The main principle is that we would like to be useful for the company in its development, though. We do not want to speculate about purchases. To do that I might go to the stock exchange and play with publicly tradable shares. When we know that our strategy brings added value to the company, we also know how to ask for an adequate price for that. It is too soon now to mention any particular amount at the moment.

Marila was a different story
Was your transaction with Gross similar to your purchase of Marila? There is another controversial name behind this deal: Tomáš Pitr…
No, there was a difference. The negotiations were much longer. The transaction with Gross was quite quick, perhaps two weeks. And it may be said to be more transparent, for it involved purchase of shares of a company with a single owner. 
Marila was more complicated from the viewpoint of acquisition structure and financing too. As for the negotiations, in the case of Moravia Energo I dealt directly with Gross, while in the case of Marila my managers negotiated with the shareholder representatives. Everybody mentioned Mr. Pitr, but he cannot be found anywhere in the shareholding structure of the company and he was not represented by anybody either.

You also plan to stay in Marila for three to five years and then leave again?
Certainly. Even though eventually the period with Moravia Energo may be shorter and the period with Marila may be longer. Now we would like to develop Marila and structure the divisions – coffee, pastries, water – and set their clear economy. We want to prepare the company for a strategic investor including potential further acquisitions.

Do you want to “enclose” foreign companies to Marila?
Yes, we do. Our present vision is to agree a share in Baliarne in Poprad or a joint venture. Our analyses show that this would bring synergic effects. But the local director is still indifferent to our arguments. And so we will use the way of purchasing minority shares with the help of which we will affect the operations of the company and prepare the company for a strategic investor. We have also prepared an acquisition in the Ukraine and an acquisition in Rumania. But these are mere visions at the moment.

Has your effort in getting to Poprad via the minority shares been successful?
We have discussed conditions for six months. The unfavourable aspect is that the company loses value in out view. This means that the shareholders get a lower offer from us every quarter year. But I believe we will agree in the end and will be able to purchase some 25%.

Marila sponsors the Příbram Football Club of the controversial businessman Jaroslav Starka. Will you continue with this or will you back up from the cooperation with Starka?
I will give an evasive answer to this. We assess sponsoring activities with regard to their positive effect on people in the context of brand awareness. What is more important than the Marila brand for us now is the individual products, such as Ondrášovka mineral water and other products we sell. And so we revaluate the sponsoring too. We are currently working on a marketing strategy: When we see that it is advantageous to sponsor the club further we will. But perhaps on condition that the team colours will bear the logo of Ondrášovka, if the owners agree with that of course.

We will be happy to remain a minority player
Once you suggested that you would wish Arca to become the number one investment company in Central Europe, at the same time expressing the intention to act among minor players…
Yes, I meant SME by that. I cannot say the company will be bigger than PPF, J&T or Penta.

Isn´t there time to target their companies?
Any company should keep a clear concept and strategy, which in our case is SME. I do not think we want to enter the sector of the major players and big investments. Our aim is to become number one within this spectrum in Central Europe within five years. Of course strategies are here to be bypassed from time to time. And so if something big turns up I cannot exclude the possibility that me and my partners will go for it.

What is your explanation for the fact that except for PPF all strong groups originate from Slovakia? Are the Slovaks better, more flexible, or more interested in money?
I do not think so. The Jews are said to be most particular about money, and I say this with all respect. It is just an illusion. The maket consists of three major companies, PPF, J&T and Penta, and so it looks like 2 to 1 for Slovakia. 
But we should not forget about entities such as Tykač, Appian Group, Šimáně and others. These companies too invest their means. Perhaps the Slovaks need to work harder to become more visible within the small nation. Or perhaps we are really more aggressive.

Eastern Europe is enough for us
If you see your activities from the geographical point of view, you are active in the Czech Republic, in the Ukraine, in Slovakia and in London. Isn´t there time to attempt at penetration to Western Europe or even America?

Not yet. Our strategy is: Do business where you feel there is one. And we feel business in Eastern Europe. But we are not against investing in the surrounding countries of Western Europe either. I even believe that in the context of our aggressive strategy we are more interested in getting some companies there right than the local players. For example in Austria or in Germany. But for now we are oriented towards Eastern Europe.

You are said to have considered investment options in Vietnam. And what about China?
We have received this type of offers too. For when your surroundings perceive you as an expanding investor, you are offered different opportunities. But as log as we do not have our own manager living there we do not want to do that. We had an offer from Marila Vietnam, but we decided not to go for that.

How many offers do you “receive” a month?
Speaking for the whole holding it is about 50 offers a month that need assessment.

Your portfolio includes a number of fields of activity from food processing via internet to energy business. Do you specialise in the course of time? Or is it about opportunities where the field of activity does not matter?
The question is whether we are a sector oriented or an opportunity oriented investor. We cover sectors with projects like GiTy, Kasa.cz or Marila. These are fields we want to develop. 
But we are not against opportunities either. These are for example represented by Moravia Energo. We knew that the energy sector was interesting and so we waited for a suitable opportunity to enter it. 
Now we are assessing civil engineering. We would like to transfer the know-how of the companies to markets with a potential, such as Rumania or the Ukraine. We are currently analysing a Czech civil engineering company specialising in water constructions and manufacture of prefabricates.

The current hits also include healthcare and agriculture. What about that?
Not for now. We have already dealt in healthcare and we have come to the conclusion that we have still been a minor player there. If we decide for something from this field then it will be biotechnologies: we have the company BIO-SKIN (producing biological skin dressing for treatment of burns – editor ´s note). We certainly want to develop what the company has to offer.
We may find a partner to transfer this know-how to the Ukraine. We have purchased two hospitals there and now we are considering what to do with them.

And what is it?
We will lease them to the city that will use them in the context of its social programme. And then we will decide what will come next.

You must grow for Russian market
Have you thought about Russia at all? There are the Olympic Games to be held in Sochi and you support developers by the Black Sea coast in the Ukraine.
Russia needs to be taken as a partner we would like to get and we must accept its developing market. And so we are seriously considering Russia in the context of our activities in the Ukraine. We are engaged in the Kharkov Metrostav and plan some supply to Sochi.
As for investment strategy itself, I think that Russia will come after a couple of years. For – and I say this with respect – you must grow for Russia. Nobody is waiting for you there, like in the Ukraine.

And so Russia is now suitable for major players?
To be able to do something there you must have a name, a reputation. The added value there is not money, they have enough. You must offer know-how or find an opportunity. We will view Russia in the course of the following years in the context of two projects that are part of our portfolio.

You have teased the Ukrainian oligarchs, saying that they sometimes do not even know what belongs to them. Are you able to name your acquisitions in the Ukraine?
Of course I am. There are two main lines, real estate – developer business, and private equity. In the context of the developer projects we have purchase several hundred hectares of arable sil and plan to convert them to construction plots.

Isn´t it risky to purchase land in the Ukraine?

It is a big risk but it is easy. There are two basic forms of ownership there. Real ownership based on the legal documents authorising your ownership of land and real estate property. 
And then there is the lease contract for five to fifty years. As there are several options of questioning ownership – speculators and interest groups – it is good to quickly get to know the ownership history of the property in question. Legal survey sometimes reaches as far as to the fifties, when you seek for the origin of the right to the property you are interested in. Only when you know exactly what happened with the property, your ownership will become safe and non-claimable. When you are not careful enough you may well purchase “the air”.

No land register?
Not in our sense of the word. Registration is the responsibility of notaries public. Therefore you need to make sure you work with a trustworthy notary. We purchase land via specialised companies based in the Ukraine. And we deposit capital in them via various loan contracts or increase of equity.

Let us return to the Ukrainian projects.
We have several speculative and several material projects there where developer projects are already under preparation. At the Odessa route, 20 km form Kiev, we prepare a project of construction of 40 houses in cooperation with Sollaris company. Then there is the Mitnica logistic centre, again at a very busy route, the southern route. And there are two more projects under way. We intentionally focus on areas outside Kiev, where you can only enter projects in the form of lease, which may be quite risky.

Do you live in the Ukraine?
Yes, I do. When I am in Prague I say I am at home in Prague. When I am in the Ukraine I say I am at home there. But of course I spend most of my time in the Ukraine. To feel the business there. In addition more emphasis must be laid there on opinion presentation and communication. With regional as well as state politicians. When you do business you cannot avoid everyday defence of your own position.

Do you have your own house in the Ukraine?
No. We have a luxury and representative seat of the company there and I have an apartment in it. In the Ukraine you need to show how progressive your company is. If you do not show you have money nobody will notice you. I plan to buy a house but because of the prices I have now decided to continue to use the rent in the city centre for some time.

Is it important in the Ukraine to keep contact with local politicians?
You cannot do much without lobbing there. Diplomatically speaking: To assert your own interests you need a clearly set strategy of communication with local politicians (laughter). Without assured internal and external communication there is no chance for you. And you must be surrounded with people saying: Yes, these are investors with whom you need to cooperate.

Can you say how much you have invested in the Ukraine?
At present we have started investment projects worth around € 170 million. And we have prepared projects worth another € 200 million. These represent planned investments within the horizon of three years.

And what is the percentage represented by the Ukraine in the total investment of Arca Capital?
About 40 percent now and a majority in future. But there are also projects managed with other partners and not included in the Arca Capital portfolio. In these cases we have signed confidentiality contracts.
We are also business angels 
In the Czech Lands there is still the unsettled Setuza dispute. Are you still interested in it? And have you filed a petition against Spolchemie with the European Commission as you informed? 
On sale of the shares in Spolchemie we agreed to withdraw the petition and so we did. As for Setuza, only the future may show where the company will be heading. Now the owner is clear and if it fulfils its commitments, there will probably be no further space for our activities.

Once you said that your The Easy Company was kind of managerial incubator, where your managers learn to manage projects. Do you feel like a business angel?
Perhaps. We want to help new ideas. This was a project where a team of programmers addressed our manager. They said they felt badly in the company and that the company needed financial support. The investment was very low, but the main thing was to help them. Even small ideas sometimes produce great value.

Have you set financial limits to your acquisitions or do you purchase on the basis of assessment only?
This is individual. Depending on the presence of a potential, good people and quality of project. The question is not the million investment or not, but rather the placement of the investment. 
Our managers tend to create partnerships with their own capital share in the projects. Then we can say: prepare it, you can purchase the project, it will be your project, and we will help you start.

We do not feel like Seznam at all 
You have increased your share in the Internet shop Kasa.cz and you say you will become number one player in this market. How do you plan to defeat your competitors? Purchase them? Make a big company?
The same are the plans of the big investors who now purchase Centrum.cz, Atlas.cz and perhaps even Seznam.cz. There is a potential for merger. The question is whether we will manage within the Czech framework. But we are certainly interested in concentrating the Eastern European market. 
As for the Czech Lands, the strategy may be either acquisition of another on-line shop, or rather increase of and support for turnover.

Isn´t Arca interested in Seznam.cz?
Thank you very much for your flattering idea that we are a big enough player that can afford that.

But it is a minority 30% share that is spoken about…
Yes, but I still say with big respect no, we cannot afford it. This is beyond our strategy. We do not feel strong enough to do that indeed. The same would be my answer to a question like Are you going to take part in the privatisation of the Czech Airlines or the Prague Airport? 
I do not think we possess an added value for development of an airport or the Czech airlines. This requires a big and strong strategic player.

You also possess the telecommunication company GiTy, so do you plan to offer voice and internet services in the Czech Republic or abroad?
This project is in the stage of a vision that slowly begins to materialise. In some regions we have already started negotiations and offering of development of the internet by GiTy. We are heading towards Rumania and the Ukraine with this. GiTy has its office and management in Rumania and we present the company in the Ukraine together with Arca Capital.

You hold 83% of Arca Capital, with 17% held by your schoolmate Peter Krištofovič. In the Salve Group company the situation is quite the opposite. How does your cooperation work?
We get along very well together. Also because each of us has his own project line to manage and the other shareholder only plays the role of strategic consultant in it. We respect each other ´s business and take responsibility for what we actually do. We only apply claims of minority shareholder against each other informally.

Pavol Krúpa (36)
Education: Graduate of the Faculty of Business Management, University of Economics, Bratislava 
After 1994 he began to purchase shares in companies, became member in various consultancy and investment companies, such as All Finance Services. By transformation of this and other companies controlled by it in 2003 Arca Capital was established.
At present he is majority owner (83 %) and CEO of Arca Investments, the parent company of Arca Capital with together seven subsidiaries.

What is Arca Capital
The group invests into food processing, energy, civil engineering, telecommunications, IT and biotechnology businesses. 
The target of its investments is represented by SME (the upper investment limit is € 50 million). 
The group is represented in Slovakia, the Czech Republic, the Ukraine and Great Britain. 
The company administers assets worth about € 125 million.
Source: www.arcacapital.com
€ 170 million 
Investment of Arca Capital in the Ukraine.