Principal Acquisitions

We have a number of core competencies and approaches which describe our investment style and characterize how we add value. We like to talk to investors directly about these because all the difference can be in the nuances, but in summary:

  • We are strong in origination
    • People like to work with us. Weve been in the field since before the creation of capital markets in Ukraine. Consequently we see many opportunities which are not marketed as such to any other investors. We have a very wide net of resources that originate deals, and a generous compensation structure for third party originators of transactions.
  • We tend not to participate in competitive auctions (unless we are selling).
  • We undertake rigorous due diligence, including certain investigations that are non-typical.
  • We spend a lot of effort on understanding the total risk of an investment, and look for the unseen risks.
  • The application of best practice Corporate Governance is a fundamental part of our value added. We represent and defend our investors best interests. Period.
  • We spend a lot of time with incumbent management to develop a value-oriented strategic plan. We almost always identify and bring in (Western) industry experts to help us. One interesting part of this process is that we almost always have a better sense of the possible than (typically capital-constrained) company managers. Having done it many times before, we usually have far broader and more ambitious horizons than management can usually contemplate.
  • We have a wide and deep network of relationships. We have operated at all levels of business and politics. We are politically neutral and have good friends across the political spectrum. We are known to have made a lot of money for local businessmen that we have worked with.
  • We remain strictly on the buy-side only. We avoid the inevitable conflicts of interest of a full-service investment bank by focussing on what we do best, just the buy-side. It may seem to some as an arbitrary distinction. For us it makes all the difference in the world.
  • Control investments only. We do not make passive equity investments. We have either strong or very strong elements of control over all our investments.
  • We always keep sight of and think hard about the revaluation event.
    • We make investments where:
      • we can effect a dramatic increase in the top line, and/or
      • We can effect a dramatic increase in profitability and cash flow, and/or
      • Where the returns on invested capital (at the margin) are high, and/or
      • Where we can effect follow-on acquisitions

It is interesting to note that the culture of the management incentive model (whereby senior management is able to make more money in 3 years than they have in their lifetime, and enough money to retire, if they so wish) is practically non-existent in Ukraine. We make a compelling proposition to management, within the framework of our corporate governance model. It takes out agency risks and allows us to recruit the best supplementary managers if so required. Since we have been doing this for more than 12 years in Ukraine, we are able to point to a number of previous directors that we have worked with and have treated well and they are invaluable referees for us vis a vis new management teams.