“Curiouser and curiouser,” said little Alice when confronted with the realities of Wonderland. It is a fairly common practice in this part of the world that the transaction details, and price in particular, are not revealed to the public. But keeping this information confidential for those in the Baltics while circulating a press release with all the details in Sweden is kind of a novel approach indeed!

On Friday last week BillerudKorsnas, a Swedish provider of packaging material and solutions, announced that it together with Baltic Resources AB had agreed to sell their shareholding in Latgran SIA, a Latvian producer of utility-grade wood pellets, to Graanul Invest AS, an Estonian company operating in a similar sector. The transaction is expected to close in July 2015.

In 2014, according to its financial statements, Latgran reported sales of EUR 73.4 million and after-tax earnings of EUR 10.3 million. The company’s earnings before interest, tax, depreciation and amortisation (EBITDA) exceeded EUR 14.6 million. Its interest bearing debt from credit institutions amounted to EUR 10.6 million, or stood at a very comfortable level of only 0.7x times EBITDA.

According to BillerudKorsnas’ publicly issued statement under the Swedish Securities Market Act, the consideration to be paid for 100% of shares in Latgran will be based on applying a multiple of 7.0x to its 2014 EBITDA with the necessary adjustments on a cash-free and debt-free basis and will amount to EUR 104 million.

Despite its respectable size Graanul Invest is keeping a low public profile and has not yet published its financial statements for 2014. The media refer to the 2013 results, as reported by Reuters, when the company had posted revenues of EUR 130.5 million and net profit of EUR 10.5 million. According to Graanul Invest, with a production capacity of 853 thousand tons a year it is the second largest pellets producer in Europe.

Apart from the general comment that it is privately owned, Graanul Invest has not been very forthcoming about its current ownership structure either. It appears that at some point back in 2007 100% of its shares had been acquired by Alta Capital in a transaction with Vicron Investment Group. According to the same public sources, to finance the transaction Alta Capital had issued bonds to the tune of 141 million kroons (EUR 9 million). The annual production capacity of Graanul Invest at that time was claimed to be approximately 200 thousand tons a year.

Alta Capital, with its almost meteoric rise to becoming a leading financial investor in the region, its aggressive deal tactics and more than aggressive use of leverage in financing those deals has certainly left its mark in the Baltic M&A market. At the high point of their existence and before the whole structure started to unravel hardly a quarter went by without a new transaction being announced. Whether this particular deal of acquiring Graanul Invest closed or not in 2007, and what has happened with the ownership of Graanul Invest since then is difficult to establish without a more thorough exploration.

The fact that the European Bank for Reconstruction and Development (EBRD) has lent EUR 34.4 million in 2011 for construction of two CHP power plants simultaneously in Estonia and Latvia and has granted a second stage facility amounting to EUR 30 million in 2013 serves as a strong endorsement of Graanul Invest’s credibility. However, this does not explain how the acquisition of Latgran is going to be financed.

Finally, the former owners have invested significantly during recent years to grow and to expand Latgran’s business without signalling any intention to exit. Latgran’s bank debt, which is maturing in September 2015, hardly seems to be a reason for concern either. The official statement that “the sale of Latgran is in line with our strategy and will enable us to continue to develop our core business” is such a standard wording that it could mean virtually anything. Is there a seller-specific reason behind the transaction? Or is this again a part of the exodus of Nordic companies from the Latvian market?


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