Market
10.09.2015
By mergers.lv
mergers.lv

It is Warren Buffet who invests for long term. The lesser mortals usually are more restricted in their actions. For regular private equity investors the investment holding periods are limited by the life cycle of the fund the particular investment has been made from. This usually means that exit needs to be sought in year 5, or, in some cases, a year or two later. Anything that goes beyond that is already exceptional. For instance, an investment that has been held for more than ten years.

We already reported that as part of this summer’s deal-making wave and without much ado BaltCap, a private equity manager, disposed of its investment in V.L.T. SIA. In many respects V.L.T. is unique – we all are familiar with their product without knowing anything about the company behind it. V.L.T. happens to be a low-profile manufacturer of moulded fibre egg cartons and trays. Yes, the very same cartons that we pick up at the local supermarket without giving them a second thought.

BaltCap’s investment story started in 2004 when it acquired a 37.6% stake for an undisclosed consideration. Over the years their relative share had increased to 48.15%. In 2003, the year preceding the investment, the company had reported sales of EUR 1.049 million, EBITDA of EUR 529 thousand and net profit after tax of EUR 176 thousand. Its interest bearing liabilities stood at EUR 1.412 million.

Now fast forward to 2013: sales of EUR 3.309 million, EBITDA of EUR 586 thousand, net profit of EUR 88 thousand and interest bearing liabilities of EUR 3.804 million. In our M&A Intelligence Report issued last fall we argued that the equity value of the company with Debt-to-EBITDA ratio approaching 6.5x times was close to nil.

On the basis of public reports it is not possible to gauge what caused the turnaround, but some turnaround it was, for sure. In 2014 the company reported a decrease in sales to EUR 3.245 million, but its EBITDA almost doubled to EUR 1.084 million. Combined with the reduction in interest bearing debt to EUR 3.417 million this brought V.L.T. back to acceptable levels of leverage.

There has been little information disclosed about the transaction, except for the statement that the buyer is one of the company’s three private shareholders and that no financial details will be disclosed. According to company register, the new shareholder is Nauda OU, an Estonian entity with a very Latvian sounding name (“nauda” translates as money).

It is difficult to estimate the transaction value in this case. Given that the buyer was another shareholder it is hard to expect that BaltCap was able to maximise the proceeds from the sale. At an assumed fairly reasonable EBITDA multiple of 5.0x the value of BaltCap’s stake would approach EUR 1 million. Although this is pure assumption and we do not even know the size of their original investment, we would still be prepared to argue that this did not provide an adequate return for ten years of investment.

What was it that Mark Twain had once said about putting all your eggs into a basket? Put them in one basket and then watch that basket. There are occasions like this when such advice needs to be taken almost literally!

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