Investment fund DBG Eastern Europe II, whose main financer is the German Deutsche Bank, has bought into Romanian home appliances retailer Flanco with an investment worth 6.5 million euros.
Flanco is DBG's first investment in Romania, after having scoured the market for opportunities over the past two years.
"We have chosen Flanco because it is a solid company, with a good management team and a clear long-term growth strategy. Furthermore, it is in a market that has great potential, despite this year's drop," Brian Wardrop, a partner with DBG, told Ziarul Financiar.
The investment is part of a complex transaction, worth 13 million euros, which saw Greek investment fund Danube Fund sell its entire Flanco stake. Until the sale, Danube Fund held a 33% stake in Flanco, with the remaining of shares owned by Swedish investment fund Oresa Ventures (47%) and the company's founder Florin Andronescu (20%).
The transaction was carried out in two main stages. First, Oresa bought the share owned by Danube Fund. Then, DBG bought into the company, most likely following the acquisition of some shares and after a capital increase.
The total value of transactions amounted to 13 million euros, but neither fund was willing to disclose the exact size of the capital increase or of the stock acquisitions. Oresa is likely to remain the company's main shareholder.
"Following the transaction, Flanco benefited from a capital increase that will sustain the company's development plans. We feel Flanco has the potential to double its sales over the next 3 to 4 years," said Cornel Marian, Oresa Ventures investment manager for Romania.
Flanco last year made 117 million euros of sales and owned approximately 115,000 square metres of commercial space. Early this year, the company revealed its growth plans for the period up to 2006: 30,000 square metres of commercial space and sales amounting to 200 million euros.
However, these plans may change given the 15% drop in the home appliances market this year, following last year's 70-80% surge. Last year's growth was due to the booming consumer lending, whereas the declining trend seen this year was triggered by the restrictions imposed by the central bank to slow down the lending.
The market changes also influenced the investment funds' attitude towards retail. In 2003, when the market boomed, many funds in Romania and the region started talks and negotiations with a view to buying into the three big home appliances retailers: Flanco, Altex and Domo.
This year, however, negotiations slowed as problems emerged. AIG New Europe Fund did not finalise talks with Altex (owned by businessman Dan Ostahie), and Romanian American Enterprise Fund is still in talks with Domo (owned by Lorand Szarvadi).
As a result, DBG is the first fund to bet on a home appliances retailer following this year's market slump. "Actually, it was after we saw how the company successfully handled a difficult period that we decided to invest," Brian Wardrop explained.
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