The loan market woes that arose in the past three months may have an impact mostly on mega-sized takeovers, but the grievances caused by the sub-prime mortgage fiasco are unlikely to have an affect on those regional investment projects in the CEE with a large growth potential but where the value lies elsewhere than the big capital gearing, said Tamás Tüske, Enterprise Investors' country representative in Hungary and EI partner Robert Manz in an interview with Portfolio.hu.
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Portfolio.hu will organise its 4th CEE Corporate Finance and Private Equity Conference on 6 November 2007 in Budapest. Portfolio.hu: What is the main focus of Enterprise Investors in terms of the preferred company size and industry? 
Tamás Tüske:Enterprise Investors is a key independent player of the private equity scene in the region. It manages six funds worth USD 1.6 billion. Our investments, the financial background of which is mostly secured by institutional investors for years, are focused mainly on medium-sized buyouts and business development projects with a horizon of three to six years. We seek investment opportunities primarily in new European Union member states and Ukraine.
With regard to sectors, there are four of them we prefer. These are:
- consumer goods, services, retail trade;
- financial services;
- IT and telecommunication and;
- industrial goods and services.
I'd like to emphasise that there is no other private equity company in the region with a similarly wide focus, since - apart from the aforementioned - Enterprise Investors has also carried out investments in the media, the pharmaceutical sector and in health care.
P.: How much do you prefer exit via stock exchange listing? T. T.: Over the past 10 years we have executed 104 investment projects, managing 90 exits. On these 90 exits the company realised a profit of EUR 1.2 bn, 80% of it in Poland at a 2.5x rate of return.
The number of stock exchange listings is way above the average with us. I'd say it's very much Enterprise Investors specific. Since the company's establishment there were 25 stock exchange listings, all of them in Poland. The latest IPO was of Magellán financial advisor, but we plan to float another four companies in the next six to nine months.
P.: In respect of the transactions, do you rather carry out the acquisitions jointly with financial investors or you team up with strategic investors occasionally? Robert Manz: Recently, we have co-operated with strategic investors a few times, but nowadays we are the ones who typically lead manage these projects. Our current investment partners come mostly from the top tier of the managed companies.
P.: Ho do current developments on the mortgage market affect - both in global and in CEE terms - the buyouts that are effectuated from credit? T. T.: We do not experience that the events of the past three months would cause difficulties in this region. In the period to come, banks will undoubtedly think twice before lending money for takeovers or they will set conditions that never existed before. We, however, invest in companies with massive expansion and whose value lies not in big leverage (capital gearing), as with other players, but the growth of the company. We do not yet see problems, but if the situation got really mad it would not be only Enterprise Investors and not even the private equity business that would be in trouble.
R. M.: Leverage is not a core essence for us. Loan market woes are mostly affecting mega deals in Europe, and these transactions are more a characteristic of Western Europe than CEE.
P.: How do you keep the spark in the management of acquired companies? Is there a management incentive programme in use? T. T.: Our preferred position is majority ownership or we are minority owners in the biggest assets. We use the so-called "hands-on approach", which means we provide a multi-level consulting to management and help them and work with them in strategy, business development and everything that has to do with value creation. We always have a management incentive scheme in place. There's a general pattern we use, since the attitude of the companies' management is of key importance.
P.: Do you strive to exploit the potential synergies between your existing assets? R. M.: We do seek synergy potentials and we try to maximise synergies among the companies in our portfolio. We do not invest in companies that are competing with each other in the same sector. We also try help companies in our portfolio to find each other and arrange that management of these firms meet and can work together. Moreover, we also assist our companies in finding acquisition targets in the region, so we can benefit even more from the growth opportunities in the region.
P.: With regard to your investment strategy, which part of the life-cycle curve of potential targets do you prefer in a takeover? T. T.: In most cases we carry out a buyout on mature companies. We typically invest in businesses where owners are in place for over ten years so they are already past the period of swift build-up and massive revenue growth. (This, of course, does not mean that companies with potentially large revenue increase are off the list.) Our main approach is to enhance the profitability of the company. We do not have early stage investments, but we are not inclined to embark on smaller projects either. The low limit for us is EUR 20 million - this is the smallest amount of money we put in a project.
P.: How do you get in connection with your targets? T. T.: The targets either have a substantial growth potential or have the ability to expand in the region. Sometimes the management and the owners of these companies come to us, while other times we use our extensive network of relations. We systematically observe these companies, since this line of business demands relations to be build up for a long time. Most of our investments are realised via our direct contacts. We also organise special programmes, so-called MBI/MBO (management buyout/management buyin) clubs in the region, where we invite managers that may be interested in what we do.
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