The first signs of spring weather in late February and early March brought some serious reshuffling in the Latvian waste management business landscape. In a sequence of transactions, which, according to public statements of participants, had been in preparation for almost a year, Bioinvest SIA first sold its shares in Vides Pakalpojumu Grupa SIA (former Veolia Vides Serviss SIA) to Zala Josta SIA, and then acquired 100% of shares in L&T SIA. And, finally, Energijas risinājumi SIA, owned by Mr Guntars Kokorevics, became the sole shareholder of Bioinvest by acquiring the remaining 10% of shares.

As a result, Mr Kokorevics has exchanged ownership in one waste management business for another, significantly larger, and has formally disengaged himself from the business interests of Mr Andris Skele, a former Prime Minister and one of the most influential businessmen in the country.

L&T, a waste management and cleaning market leader in Riga with c. 60% market share, has been built on the basis of a local company which was acquired by Lassila & Tikanoja Plc, a Finnish publicly listed company, in 2003. In a typical post–transaction exit statement Lassila & Tikanoja referred to “streamlining of business portfolio and implementing a strategy of profitable growth” and to “the great transition the Latvian market for environmental services is undergoing” as the reasons behind its divestment from the Latvian business operations.

In absence of more recent financial statements of L&T, results from 2012 could be used as a proxy assuming that no material changes have occurred during 2013. At the end of 2012 the company reported sales of EUR 16.5 million, earnings before interest, taxation, depreciation and amortisation (EBITDA) of EUR 2.9 million and net profit after tax of EUR 1.2 million. Compared to 2011, the company’s sales had been stagnant while profitability growth had actually been negative. At the end of 2012 the company had been practically debt free with interest bearing debt at 0.16 times EBITDA only.

No transaction details, including the consideration paid, have been made public, but the rumours picked up by local media in the fall of 2013 (claiming that Vides Pakalpojumu Grupa was in discussions to acquire L&T SIA), had put the number close to EUR 14 million. If true, this would value the company at almost 5 times EBITDA, 0.85 of sales and almost 12 times the year 2012 earnings, none of which appears unrealistic. According to a public statement by Nordea Bank Finland Plc Latvia branch leadership, the bank has provided financing for this transaction in the amount of EUR 9.4 million. This would result in the interest bearing debt being at a level of 3.27 times EBITDA which is still within the limits of prudent leverage for a senior loan (it is highly unlikely that a conservative lender like Nordea would have provided anything else than a senior loan). The sources of the still sizeable equity portion used to fund the remainder of purchase price consideration remain somewhat unclear. Presumably proceeds from the sale of Vides Pakalpojumu Grupa had been used for this acquisition (although Bioinvest has registered a commercial pledge of EUR 11 million suggesting some deferred payment mechanism involved in the transaction of selling Vides Pakalpojumu Grupa).

Irrespective of the funding structure, the challenge for the new owner will be to grow the business profitably during the times of great transition - what the sellers have considered as “not the right time to invest”!

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