Articles
INTERVIEW: SKVORTSOVA ANNA
08.03.2010
Private equity market players often have particularly developed expertise in certain types of transactions or industries. Period of crisis is favorable for those who specialize in distressed assets. How do distressed assets funds operate in Russia? We interviewed Anna Skvortsova, managing director of private equity fund Ledokol, to learn more about the activities of the fund and the peculiarities of working with distressed assets.
 |
Good afternoon, Anna! Please tell us briefly about the investment strategy of your fund - in which companies and under what conditions do you invest?
Our fund invests in companies experiencing difficulties due to the current market conditions, so-called distressed assets. Typically, this situation is caused by the lack of funds in the company or by the increased activity of creditors or by the conflict of two or more business entities.
Our fund is interested in such special situations, when we can expect to receive control over the company with minimal cost.
Control over the company can be achieved both through the acquisition of its shares, and through the acquisition of its debt obligations.
|
What is the current size of the fund and who are the investors?
Current size of our fund is about $ 40 million dollars, our investors are individuals and institutional investors.
How do you work with your portfolio companies - what expertise do you bring to them and how do you participate in management?
The work with portfolio companies is formed in such a way that each party involved in the project would clearly understand and realize their further contribution to the development of the company.
Basic principles are stipulated in advance, as well as the exit strategy.
At the initial stage we weigh our opportunities for a certain company, we determine what our fund can bring to it, our capabilities and competences that could positively influence the development of the company. At the same time we carefully study the current situation in the company, its strengths and weaknesses.
The overall result is a puzzle of many different components, which you must put together and evaluate what the result would be – could our capabilities successfully complement the existing strengths of the company and at the same time neutralize or eliminate most of the shortcomings?
In each certain case a set of competencies introduced in the portfolio company may be different. Anyway, our fund is not a passive investor and one of the prerequisites for entry to the company is ability to participate in its management. Our fund participates in strategy development of the portfolio company, provides administrative resources, financial, legal and staff support.
Did you make any investments since the launch of the fund?
Yes, since the establishment of the fund, we already made a number of investments. We acquired stakes in three companies involved in construction of power grids in the Southern Federal District. Companies have great potential, they are widely known in professional community, have a good track record, and we estimate that they have ability to attract and realize much more contracts than they do at present.
According to our observations there are coming now significant changes in the energy sector: redistribution of contracts for power grids construction; contractors that receive orders are trying to gain control over subcontractors, thus many companies become larger through mergers with the smaller one.
Another our acquisition is a collection agency.
Which industries and companies do You think are currently of the greatest interest to invest in Russia?
In Russia the most interesting are the least exposed to crisis industries. It is food, consumer goods, packaging industry, energy and others.
What are the main sources of deal flow to your fund? How many projects come to you on average monthly?
Many projects come from applicants that found us on the Internet, but it is hard to find really interesting projects among them. The second source of deal flow - familiar to us advisory companies, they present better prepared information and know what projects are of interest to us. Another source - long-standing partners and investors of our fund. Monthly we analyze on average 8-12 projects.
Why did you choose distressed assets as your investment strategy?
Investments in distressed assets seem the most attractive to us because the professionals of our fund have much experience in dealing with those issues that cause difficulties for current managers or owners of such companies. Also it is a unique opportunity to acquire stake at very attractive terms.
Which exit scenarios are you considering?
The most realistic scenario of our exit is selling the entire company to a strategic investor, after reducing the risks of distressed assets. Of course, other scenarios are also possible. After all the fund is interested in the rate of return on our investments.
What are the main challenges that you face in the market while making investments, structuring deals and functioning of the fund?
There are two main sets of problems.
First - is the complexity of Russian assets structure, they are often poorly structured as the result from desire to minimize the cost of taxes.
While working on our projects our fund aims to structure the company's assets in a way that its balance sheet would reflect all its assets involved in production or supply chain. Only in this case the value of the company for sale to strategic investor will be adequate, in any other case the buyer will use decreasing multipliers that would take into account tax risks, the risk of property loss that is not registered or registered without compliance with the law, etc.
Second - is the Russia's legislation that does not allow adequately protect the interests of investors in accumulating funds and the acquisition of assets.
To address these issues usually funds in Russia apply foreign law. In addition, our specialists are experienced in corporate law of Russia and it allows us to solve many problems with Russian law.
What are the current trends in the private equity market that You could mention?
The funds that entered a number of companies before the crisis now have to work on recovery of portfolio companies.
The funds that at the beginning of the crisis had unspent funds were forced to suspend new investments, since on the one hand some investors have withdrawn their commitments, on the other hand forecasts and assessment methods which the funds used for many years began to look unlikely.
After the start of the crisis a number of private equity funds specializing in distressed assets were established. These funds follow the basic principles of classical private equity funds (buying shares in companies, enhancing the value of these companies and subsequent sale), but they use additional set of tools that allow them to solve other kind of problems.
Anna Skvortsova is a Managing Director of the Ledokol Capital Management. She has long-term experience in the investment field. She has been most recently engaged in developing and realization of investment projects in such companies as “Triumph”, Sminex, ARMI (Agency of Risk Management and Investments).
Anna Skvortsova has gained great experience in due diligence process of investment projects in such industries as retailers, development, engineering, constructing engineering, hotel business and food industry.
She worked as a Strategy Manager Adviser in IDS Sheer Consulting Company, where she was involved in development and rolling-out the strategy management system BSC (Balanced Scorecard) for MGTS Company.
She acted also as a Strategy marketing manager for “Rosagroimport”.
Anna Skvortsova graduated from RSHU (the Russian State University for the Humanities) with a degree in “sociology”. Besides, she has obtained a “Financial management and evaluation of business value” Diploma of MESI (the Moscow State University of Economics, Statistics and Informatics).
