Mike Collier in Riga -
Many words have been used to describe the markets in the Baltic states in the last 10 years: "booming" "overheating" and "collapsing" have probably been among the most common. But in all that time, one word has never been heard, which makes Mikus Janvars' use of it seem remarkable: "comfortable."
"We feel really comfortable about the future of the market," Janvars tells bne in the breakfast bar of the Hotel Alberts in central Riga for an early-morning meeting, "There are loads of opportunities."
Janvars is one of a handful young Baltic financial brains who have just set up Porta Finance with the aim of securing M&A deals, raising capital and advising on debt restructuring. It is the sort of business that was in cryogenic suspension during the economic crisis with M&A deals dead, capital as rare as a warm day in winter and debt restructuring dominated by banks laying down the law in order to protect their own exposed balance sheets. But according to Janvars that is all changing. "Already at the beginning of 2010, the M&A activity in the Baltics was picking up quite significantly. Then at the end of last year it really seemed to pick up. What's driving it are first of all the macro developments with the Baltics now 'out of the woods'. The fiscal measures and austerity measures that are still on the agendas of most EU countries are already [in the] past in the Baltics."
In Janvars' view, investors are aware of the head start this gives the Baltics moving forward. "The economies have adjusted, the internal devaluation - although extremely painful - has taken place, exporters have regained competitiveness and investors see that. People are starting to like Baltic assets once again. Back in 2009, if you called someone to say 'We have this and that', people were simply not picking up the phone. Now it is completely different - people are actually calling you and saying, 'Remember this and that from two years ago -have there been any developments?'"
In a way, Porta Finance is itself a product of the same process of waking up after hibernation. In February, Janvars (plus partners Julijus Grigaliunas and Aidas Galubicka) bought out the Baltic corporate finance operations of Evli, the long-established player in the region for which all three had previously been working. "Everyone who has some sort of ambition wants to work for him- or herself, so if the right opportunity is there, you want to take it. We saw the right opportunity and we took it," he says.
"Evli didn't feel quite as bullish about the prospects as we did, so we made a decision that in our mutual interest the best way forward would be to part ways and for us to buy out the operations of Evli corporate finance in the Baltics. Evli still has its private banking operations, and it still does corporate finance in Finland, Sweden and Russia, so they are still in the business but moving more into the asset management field," he says.
As to which areas of the Baltic markets are likely to provide the richest pickings, Janvars is realistic. "It is obvious that given the size of the Baltic markets, it's difficult to specialise in one sector. You still have to be general until you establish a very strong track record in certain sectors which you can then leverage. But exporting companies, wood processing and food processing are some of the sectors that have recovered particularly well. We also foresee activity in the energy sector and even a bit of a recovery on the real estate side."
This last one may seem surprising given the huge scale of the Baltic property bubble that burst in 2008, but it does makes sense provided your risk appetite hasn't completely atrophied. "There are loads of real estate developers that have gone bust over the last couple of years, but the ones that have been able to survive feel much more bullish about the prospects of the market and feel that this is the time when you can enter the market at the bottom," says Janvars.
"We've been on a roadshow with [Central and Eastern European-oriented] private equity houses to chat with people about the prospects for the Baltics and the feedback we received was surprisingly positive, even in comparison with other CEE countries which by European standards are very healthy economies."
"Of course it's not all bright and white," he cautions. "There are still problems, but overall the macro- and micro-news has been driving interest."
Though it's still early days for Porta (the name is a portmanteau word derived from the Latin to suggest a gateway rather than a tribute to the great Argentine fly-half Hugo), the company will ultimately seek to be active beyond its Baltic hinterland.
"Initially, we will be focusing on the Baltics, but we are considering some other geographies," says Janvars. "We're taking a look at what's happening in Belarus, we've established contacts in Poland and have certain ideas about Russia, the US and Scandinavia. You can't be local in finance - you have to have people on the ground locally in your core markets, but at the same time you have to have a wide-ranging network across the region because pretty much no deal is local."
"We will be looking further afield too, but we need to realise that only the biggest cases in the Baltics would be of interest to people from China, or North America. But there is already a track record of exotic geographies investing in the Baltics," Janvars says, citing the purchase of Lithuanian pharmaceutical company Sanitas by Canada's Valeant for €314m in August 2011 and the US' Thermo Fisher Scientific's acquisition of Lithuanian biotech Lithuanian Fermentas for $260m in May 2010.
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