Author: Josef

Arx Equity Partners (“ARX”) held the first close of its third dedicated Central and Eastern Europe focused lower mid-market fund at € 83 million. ARX is targeting € 125 million for the fund’s final close. ARX III’s largest first close commitments came from the European Bank for Reconstruction and Development, the European Investment Fund and Alpha CEE II (a fund managed by Alpha Associates).

ARX III is the successor fund to DBG Eastern Europe II LP. DBG Eastern Europe rebranded as ARX and became fully independent in early 2008.

The ARX team of eight professionals is led by co-Managing Partners Jacek Korpala and Brian Wardrop. „ARX III represents a continuation of the strategy we have pursued over the past several years with DBG II; and our geographic focus and investment style are well-suited for the current market environment”, said Korpala. Wardrop added, „succession-driven dealflow in the CEE region is increasing for several fundamental reasons, and ARX is ideally positioned to capitalize on these opportunities”.

ARX III will target equity investments of € 3-15 million per transaction.
Recent ARX events reinforce the attractiveness of the CEE lower mid-market segment. On September 1, 2008, ARX completed an exit from its investment in Donit Tesnit in Slovenia, realizing a cash-on-cash return of 3 times and an IRR of 58%. Then, on September 26, 2008, ARX completed the concurrent acquisitions of two complementary businesses in the Czech Republic (Lanex a.s. and Singing Rock s.r.o.), in a succession-driven buyout. ARX secured acquisition financing for the transaction from ČSOB and UniCredit banks.

Funds managed by Arx Equity Partners (“ARX”) supported Tomplast d.o.o., a Slovenian plastic components producer, to perform an add-on acquisition of Unitplast d.o.o..

On April 25, 2008, Tomplast, backed by ARX, completed the add-on acquisition of a 100% ownership interest in Unitplast. ARX has held a controlling stake in Tomplast since July 2007, when the company was acquired in partnership with Mr. Mark Stemberger in a management buy-in transaction.

Tomplast is a Slovenian manufacturing company, which acts primarily as a tier two supplier of plastic components for the automotive and leisure industries.

Unitplast is a producer of rubber and plastic components located in Semič, Slovenia. On a pro-forma basis the acquisition of Unitplast will more than double Tomplast’s 2008 revenues.

Axon Leasing and Financial Zrt. (“Axon” or the “Company”), the largest non-bank-owned leasing company in Hungary announced today that it has received equity funding from ARX (formerly branded as DBG Eastern Europe), a mid-market focused CEE private equity firm and 3i, the London FTS100 private equity fund, who acted through 3TS Capital Partners in the transaction. The investment was made through a Cyprus-domiciled investment vehicle. The investment, containing both a stock purchase as well as a substantial contribution to Axon’s share capital, totals € 9 M. In addition to this amount, the private equity investors earmarked € 6 million for further expansion in the future.

Axon maintains a solid market position in certain well-defined segments of the leasing market such as the financing of commercial vehicles, machinery and boats. Axon was founded in 1991, and currently ranks among the Top 10 Hungarian leasing companies in truck leasing; is also strong in equipment leasing; and is the market leader in a niche segment: boat leasing. Axon is active in both financial and operational leasing. Axon expects to finance new leasing assets of around € 40 M in 2007 and has a leasing portfolio of € 75 M.

Axon’s core customer focus is the SME market segment, which tends to be under-funded, due to the fact that many SMEs have limited collateral to secure bank loans. Therefore, leasing should assist in driving the growth of the SME segment in Hungary. The current ARX / 3i equity infusion will propel Axon through its next phase of growth and expansion. The new funding will enable Axon to expand into new geographic and product areas. Axon will strengthen its market presence in Western Hungary and is planning to expand into Romania and possibly Serbia or Croatia. Axon sees great potential in its recently launched new division focusing on real estate leasing.

„As an independent leasing company you need to provide superior, value-added service to clients in order to be able to compete with the bank owned leasing firms. Our people are Axon’s greatest assets and we are constantly looking for new talent and experienced professionals. We are very happy to have found such partners as ATX/3i/3TS who are not only committed to support us with funding but also help the development with other important business aspects” – stated Zoltan Kun, Founder & CEO of Axon.

Slovenian plastic components producer, Tomplast d.o.o., has been acquired by DBG Eastern Europe II, LP (“DBG”). Tomplast is one of Slovenia’s leading manufacturers of plastic-moulded components.

On July 6, 2007, DBG completed an MBI of a 100% shareholding in Tomplast d.o.o. The acquisition of Tomplast is DBG’s second Slovenian manufacturing buy-out investment in the past two years.

Tomplast is a Slovenian manufacturing company, with a primary strategic focus as a supplier of plastic components mainly to the automotive industry. The MBI team that has partnered with DBG in the Tomplast acquisition is led by Mark Stemberger. DBG and Mr. Stemberger intend to grow Tomplast in the coming years organically and potentially via acquisitions. The transaction size was not disclosed.

Merger of companies controlled by DBG Eastern Europe II LP: Ergis S.A. and Eurofilms S.A. (the latter quoted on the Warsaw Stock Exchange) is a fact. The Court registered the merger on 29 June. In effect it was created one of the largest plastic processing companies in Central Eastern Europe, with the total annual net revenue surpassing PLN 390 M.

On 29 June 2007, the Warsaw District Court registered the merger of Eurofilms S.A., the leading manufacturer of stretch films in Poland, producer of thermo-shrinking PVC films and distributor of BOPP films and PET tapes, with the Company’s majority shareholder – Ergis S.A. – the largest in Poland and the leading in Central Eastern Europe manufacturer of PVC based products (films, compounds, wallpapers, wall panels and windowsills). The merger was approved by shareholders of Eurofilms and of Ergis at their respective general meetings in May. The new entity is operating under the name Ergis-Eurofilms S.A. The leading shareholder of the merged entity is Finergis Investments Ltd, which in turn is controlled by DBG Eastern Europe II LP.

Strategic development objective of the merged companies is to strengthen its leading position in manufacturing of films and processing plastic in Central Eastern Europe.

Jacek Korpala, Partner at DBG, said: „We are glad that it was possible to effect the merger efficiently, fast and with support of the companies’ shareholders. We are looking forward for further fast development of the merged companies, both organically and through acquisitions. We believe that Ergis-Eurofilms S.A. will be a fruitful investment for all of its shareholders.”

Komex Sp. z o.o. (“Komex” or “the Company”) – a chain of retail stores offering children clothing under the brand name “5.10.15” has been acquired by DBG Eastern Europe II LP (“DBG”) and 3TS Central European Fund II (“3TS”).

On 17 August 2006 DBG and 3TS completed a transaction acquiring a majority shareholding in Komex. The Company is the operator of over 50 stores under the brand name “5.10.15”. Komex is one of the largest retail chains of stores in Poland offering exclusively children’s clothing. DBG and 3TS acquired shares from the existing shareholder and increased capital to finance further expansion.

Jacek Korpala, a Partner at DBG and Zbigniew Łapiński, 3TS Director stated, „We are impressed by Komex’s development over the last few years, which transformed the Company from small retailer to a significant player in its market segment. We believe that Komex is well positioned to maintain its high growth in the future through continued expansion of its presence in the larger Polish cities at the same time retaining a high quality of products offered.

Finergis lnvestments, the holding company controlled by DBG Eastern Europe II, LP (“DBG”) has sold its 17% minority shareholding in Eurofilms SA, one of the largest producers of stretch films in Poland, during its recent IPO.

On June 6, 2006, the management of Eurofilms announced that the IPO of Eurofilms was a great success. Private investors subscribed for over five times more shares than were offered. New shares issued brought Eurofilms over PLN 16 M in new capital. Eurofilms plans to use this money to finance capital investments in order to significantly increase its production of stretch and PVC thermoshrink films. In addition to the newly issued shares were also sold by the existing shareholders: (i) Ergis, disposed of only a small part of its shares, thus it shall keep a majority shareholding in Eurofilms post IPO; and (ii) Finergis lnvestments sold all of its shares.

DBG’s partial exit of Eurofilms follows it’s partial exit of Flanco, a leading Romanian electrical retailer, to the largest Romanian IT retailer and distributor, Flamingo in early May. Flamingo is listed on the Bucharest Stock Exchange. DBG has retained a significant indirect stake in Flamingo.
Jacek Korpala, a Partner at DBG stated, „We are happy that stock exchange investors shared our positive view and belief about future prospects of the Company. Although DBG has indirectly sold its minority shareholding in Eurofilms, we are still majority shareholder in Ergis (through Finergis Investments), which controls Eurofilms. We are convinced that Eurofilms is capable to grow export sales and strengthen its position on the Polish market. We hope that Eurofilms shall be a successful investment for both existing and new shareholders.”

Czech specialized electric motors manufacturer, VUES Brno a.s. (“VUES”), has been acquired by DBG Eastern Europe II, LP (“DBG”). On April 26, 2006, DBG completed an LBO of a 80% shareholding in VUES through takeover of VUES’ parent ES Brno, s.r.o. Two members of the VUES senior management team have partnered with DBG in the transaction. The transaction size was not disclosed.

VUES, a former electrical machines research institute, is a Czech design, development and production company with focus on high-quality electric motors made to custom specifications. VUES’ clients further integrate its motors into equipment for industries such as robotics, logistics and packaging, electronic assembly, automotive industry, energy or traction.

„We were impressed by the achievements of VUES, which over the past 15 years evolved from a research institute into a dynamic and successful commercial organization while keeping and further developing its technical competence. We have invested in the company with a view to further expand VUES’ position in the industry, primarily through organic growth,” said Jaroslav Horak, a Partner at DBG.

Jiri Havelka, General Manager of VUES stated, „We will continue to develop and supply high-quality products for European markets. With the backing of a strong financial investor we intend to increase the range of our customers and further expand our market position.”

Flamingo International has signed on 11th of January 2006, with Flanco Holding, the agreement for the acquisition of Flanco International SRL, one of the most important retailers of consumer electronics and white goods in Romania. The total transaction value will amount to approximately € 37 M. The Flamingo Group will thus become the second largest Romanian retailer of IT products, consumer electronics and white goods in terms of sales.

„We have closed this deal because size matters on this market and we want to further develop our company, rapidly and effectively. By joining forces with Flanco, we now become no.1 on the retail market in terms of the number of stores and no. 2 in terms of sales volumes” said Dragos Cinca, President of Flamingo International. The deal will be done in cash. Flamingo will finance the acquisition through an issue of 316.9 million new shares at a price per share of RON 0.4370. The issue will address the existing Flamingo shareholders, who will have preference rights. The preference rights will be traded on the BSE. Flanco Holding intends to acquire preference rights and subscribe up to two thirds of the new share issue. The transaction will be subject to approval by the Flamingo General Shareholders’ Meeting and The Competition Council.

„Following the closing of this transaction, we anticipate that the Flamingo group shall accelerate growth and increase profitability in the context of an increasingly competitive retail market. The acquisition of Flanco brings to market a retail group with an expected turnover in excess of € 200 M in the first year after the closing of the transaction. We expect this transaction to result in substantial reductions in operating costs, especially in the purchases of IT and consumer electronics, but also in other areas such as marketing, distribution and SG&A”, stated Dragos Cinca.

The group that results out of this transaction will have 199 stores all over the country and a strong presence in the segment of medium-area shops (150-300 sqm). The company shall diversify, via a safer route, into the segment of large-area shops 2 to 3 years earlier than anticipated at the moment of the Flamingo’s IPO. „We expect that the combination of the three major product portfolios (IT, consumer electronics and white goods) will generate the appropriate client numbers for the profitable operation of large area stores (2000-5000 sqm). For the next 12-18 months, Flamingo’s expansion strategy shall focus on the development of 10 new large-surface locations under the Flanco World brand. After closing the deal, both Flamingo and Flanco brands will be kept as such”, mentioned Dragos Cinca.

Shareholders of Flanco are Oresa Ventures, DBG Eastern Europe II LP and Florin Andronescu.

DBG Eastern Europe’s second Central and Eastern European – focused private equity fund has completed its first investment.

DBG with Polish managers Tadeusz Nowicki and Marek Górski, through a holding vehicle Finergis, have acquired Ergis S.A. shares from several National Investment Funds and placed an offer to buy the remaining shares from the Polish State Treasury.

Ergis S.A. that had participated in the mass privatization program since 1994 is the only Polish manufacturer of pharmaceutical foils and of wallcoverings and is the leading producer of PVC isolation foils, packaging and office foils and of construction panels in Eastern Central Europe. Following several mergers, take-overs and development investments that took place in the years 1998-2001 sales of Ergis Group have more than doubled to reach over € 50 M in the current year.

DBG Eastern Europe II LP is the successor fund to the highly successful DBG Osteuropa-Holding GmbH that had been investing in Poland, Czech Republic, Slovakia and in Hungary from 1997.

DBG Eastern Europe is focused on later stage investments. Ergis follows DBG’s earlier investments financing management buy outs of Czech on Line and Hungarocamion.

„We believe that management buy outs of Polish industrial companies will be interesting for private equity funds in the next few years. Co-operation with Ergis management will allow us to benefit from expected development of the Company in result of Polish accession to European Union and from its intensive modernization program implemented in the last few years.” said Jacek Korpala, managing director of DBG Eastern Europe.

„I am confident that the buy out worked out by DBG and the managers will be a strong basis for long term development of the Ergis Group and will be an example to follow by other Polish middle size industrial groups.” said Tadeusz Nowicki, the CEO of Ergis S.A.