Leading private equity firm eyes additional acquisitions in Ukraine.
“The real trick is to find the right opportunities,” said Tamas Nagy, managing director at the Ukraine office of Advent International, the world’s largest private equity firm.
Indeed, Advent International is the paragon of the cherry-picking investor.
Despite having set up its Ukraine shop in 2007, the company only finalized their first acquisition in March this year. Its purchase of a controlling stake in Ukraine’s ISIDA clinic was one of the first major foreign investments in the country’s health-care sector since independence.
I
rrespective of the current market turmoil, Advent plans to go ahead with further acquisitions, as long they meet the standards. Advent describes ISIDA, which has two clinics in Kyiv and one in Donetsk, as being unique in providing world class gynecological, maternity and pediatric care services as well as the latest infertility treatment options and genetic research all under one roof.
Located in a small corner office in the high-end Leonardo Business Center in central Kyiv, quality not quantity seems to be Advent’s motto.
The world’s biggest private equity firm, it has completed transactions worth more than $60 billion in 35 countries, but only employs some 170 investment professionals in its 18 offices worldwide.
By comparison, the Moscow-based investment bank Troika Dialog, which manages $3 billion, is owned by a partnership of 130 managers and employees.
Tamas Nagy
With a standard of four employees at the Kyiv office, Natalie Polishchuk, the local office’s director, explains that all auxiliary functions are outsourced, with everyone from lawyers to accountants being hired on a project-by-project basis.
In addition to its minimalism, Advent is also a cautious investor. It was ready to finalize a deal in 2008 already but signs of global market instability, as well as worries over the hryvnia exchange rate, caused them to hold back.
“The way the crisis unfolded, I think, vindicated our strategy,” said Nagy.
The investment in ISIDA clinic fits in with Advent’s general focus, which involves a number of private healthcare investments in Central and Eastern Europe in recent years. Indeed, the investor set up a $1.4 billion fund in 2008 dedicated specifically to the region.
Polishchuk explained that Advent’s business model is typically based on $100-$180 million acquisitions. After four to six years of management and capital investments, the property is then resold at a profit.
While Advent has nothing but praise for the staff and plans to hold the ISIDA clinic for up to six years, its profitability is lower than that of Central European peers, admits Nagy, pointing to onerous regulations.
Chief among these is the non-recognition of private health care within the government’s health care policy.
This could be fairly easily turned around said Nagy, if only making private health care policies tax deductible.
At the moment, he explained, it is cheaper for a company to give employees $50 in extra pay than $50 in health insurance.
But problems with regulations and tough competition in Ukraine’s private healthcare segment are unlikely to deter further investment.
ISIDA currently employs about 560 people. Advent now plans to expand ISIDA’s regional office network. It intends to set up units in most major cities, with Odesa topping the list.
Natalie Polishchuk
While services at ISIDA are far from cheap, with individual consultations costing north of Hr 300 and delivery starting at Hr 36,000, demand is high.
The unfolding second wave of the crisis is more opportunity than threat this time around, according to Nagy.
“It is definitely the time to invest, precisely because so many peopling are holding back, or looking to exit the market,” he said. “We just have to be very selective.”
Asked about the branches they were looking at, Polishchuk said Advent would stick to what it knows best, including health care, construction materials, or machinery. Financial services are also on the table, albeit primarily back-office services, like payment processing or customer database management.
Banks or insurance companies are not interesting per se, explained Polishchuk, noting Advent had greater experience in other areas. “We stick to what we know,” she said.
Kyiv Post staff writer Jakub Parusinski can be reached at [email protected].
