New Wave of Private Equity Funds in Croatia

Mirna Marovic

In 2020, there will be five new private equity funds in Croatia coming to the market.

Several market development initiatives are promising to boost the availability of both private equity and venture capital market in Croatia. This year has witnessed the launch of the first Croatian venture capital fund with EUR 42 million available for investing in early stage and startup companies by providing both financing and expertise need to support promising entrepreneurial ideas and develop those in scalable and viable commercial ventures. This year, five new private equity funds are expected to come to the market with total of EUR 235 million.Mirna Marovic, Director, VentureXchange Ltd. and President of Croatian Private Equity and Venture Capital Association (CVCA)

New wave of Croatian private equity funds coming to the market in 2020

First, we expect two-to-three fund to be supported by the Croatian Growth Investment Programme (CROGIP). EIF is managing the process and is currently contacting due diligence and selecting the private equity fund managers. Under the CROGIP, public investment will be funded by both EIF and HBOR and private equity fund managers will need to also fundraise funds from private investors. The objective of CROGIP is to support Croatian SMEs, small midcap and midcaps, to attract private equity investment to Croatia and to build local capacity by supporting fund managers which focus a significant part of their investments into Croatian companies.

Second, two new funds are expected to become operational at the beginning of 2020 with headquarters in Zagreb, Croatia, including Invera Equity and Feels Good Capital.

Invera Equity set up by IMAP partners (formerly Ascendant Capital Advisors) is expected to be launched in Q1 2020. The fund focus will be regional buy-and-built consolidation opportunities in sectors including food and beverages, manufacturing and industrials, information and communication technologies, services (including healthcare and transportation) and hospitality. The fund will target a diversified portfolio with a typical investment size of EUR 4-12 million. The countries in focus include Croatia, Slovenia, Bosnia & Herzegovina, Serbia and Montenegro.

Feels Good Capital is expected to be launched in Q1 2020 for investing in Croatian and Slovenian companies providing growth capital with the objective to make a measurable impact by contributing to one or more of the 17 United Nations’ sustainable goals and delivering measurable social and/or environmental impact with profitable returns to their investors.

Furthermore, the first fund dedicated to mezzanine investing (Mezzain Croatia) is being launched, focusing on providing mezzanine financing in the form of subordinated debt (mezzanine financing is an otherwise complex financial instrument, positioned below traditional debt instruments and above equity investments ).

Croatian private equity investment in numbers

In 2018, Enterprise Investors made two direct acquisitions in the Croatian market in 2018 investing in Studenac (100% ownership stake) and Pan-Pek (65% ownership stake) with total equity investment in those two transactions exceeding EUR 67,2 million. In April 2019, Mid Europa has made investment in Mlinar for the equity consideration of EUR 75 million. Total private equity investment in the first half of 2019 amounted to EUR 78 million (0,16% of GDP) comprising of 3 venture capital transactions, 1 growth capital transaction and 1 buyout.

The beginning of this year marked a head-wind start to PE investments. Mid Europa Partners, the leading buyout investor focused on the growth markets of Central and Eastern Europe,merged its portfolio company, CMC İletişim ve Çağrı Merkezi Hizmetleri A.Ş. (“CMC”), with Meritus Upravljanje d.o.o. (“M+ Group”), in return for a 30% equity stake in the combined group Doğuş Group of Turkey sold its marinas in Croatia to CVC Capital Partners. Doğuş Group is among the worst affected of Turkish companies from a currency crisis in 2018 because it took on billions of dollars of foreign debt to fund an expansion. It has held loan restructuring talks with banks and announced sales of several key assets to bolster its finances.

The United Group, the largest media and telecommunication business in South-Eastern Europe, has reached a deal on purchasing Tele2 Croatia for 220 million Euros (enterprise value) and it is expected the transaction, will be finished before the end of this year. That is the first transaction since March 2019 when the BC Partners, the international investment company, became the majority owner of the United Group. At the same time, that is one of the largest transaction in South-Eastern Europe ever.