Saša Galić: There are about two thousand companies in Croatia that are interesting to private equity funds

While many businesses are still nursing wounds from the Covid pandemic, one of the few areas that has flourished during the crisis is venture capital and private equity funds. The Croatian scene in this segment has never been more vibrant – several new domestic funds have been established, and more and more foreign funds are seeking their targets in Croatia. Who are the desirable partners for private equity funds, which sectors do they target, and how do they develop the companies they invest in? We spoke with Saša Galić, the head of Blue Sea Capital, who plans to launch a new fund that will direct 50 percent of its resources towards the Croatian market. A former executive vice president of Agrokor for strategy, and now the main partner at Blue Sea Capital, who recently sold the leading Croatian producer of glass packaging for the pharmaceutical industry, Piramida, to the Japanese Nipro Corporation, revealed why he sees private healthcare as a good investment opportunity, which profile of entrepreneurs is most willing to allow private equity to enter their company or sell their business, and we also revisited the past to discuss why Agrokor met its unfortunate fate and whether that scenario was inevitable. Saša Galić was a member of the management board for strategy at Agrokor from 2006 to 2008, having come from the EBRD.

In Croatia, several funds have recently been established with approximately three hundred million euros in capital. It seems that the upcoming period will be quite lively regarding PE and VC investments. What do you expect?

– The establishment of new funds is very good for all of us in this industry. We must commend the role of the EIF, which as an anchor investor is a key player in most of these funds. For the investment scene to develop in Croatia, a greater number of players is certainly necessary. However, three hundred million euros is not much; it is a drop in the ocean compared to the real need for capital. The SME segment is not like the segment of large companies, which have various types of financial products to rely on. The newly established funds will focus on the SME segment, on companies with revenues from five to fifty million euros. And there are about two thousand such companies in Croatia alone.

Where did you get that data?

– We constantly monitor the market. We track companies as they grow over the years and compile our lists. In the region we are looking at, which includes Croatia, Slovenia, Bosnia and Herzegovina, and Serbia, there are more than five thousand such companies. Not all of them are ideal targets, of course, but there are many that are potentially interesting for investment. We are interested in those that are continuously growing, due to the structural growth of the industry they operate in, those that are market leaders or have the potential to become one, those with strong cash flow, those in defensive sectors, and companies that have market consolidation potential.

So, are there still companies like Piramida that have the potential to be interesting to large corporations?

– There are not many gems like Piramida, but in the region, there are at least fifty companies like it that have the potential to develop and become interesting to large corporations.

How open are entrepreneurs from the former Yugoslavia to investments from PE funds? Are they reluctant to relinquish control over the company they have built?

– When we entered the market in 2011, many did not even know what private equity funds were. We often encountered questions like: ‘Whose money is that, are you going to take my company?’ Most people did not understand the concept, and our role was to educate the market and explain the role of private equity funds. It is very important that there are more players in the market and that there are many success stories. For example, I will mention a case that helped us a lot in Serbia. The company SBB in Serbia is already the fifth arm of private equity. As a minority owner, its founder, Mr. Šolak, remained in the company throughout the entire process. Based on the success of that story, we found it easier to explain how the partnership between private equity funds and entrepreneurs works. When the fund first entered SBB‘s ownership, the transaction value was measured in tens of millions of euros, later in hundreds of millions, then a billion, and today in several billion euros, and Mr. Šolak remained in the company as a minority owner.

You invest in the SME segment, which is predominantly family businesses. Do you encounter resistance when engaging professional management?

– Our primary role, along with, of course, developing regular business and strategy, is to transform family companies into small corporations. These companies generally lack complete management and a developed reporting and monitoring system. Investment in people is necessary today. In family companies, there is a strong focus on how money is spent, and usually, there is a very small team responsible for many functions. This was also the case in Piramida when we invested in it: one person, the director, was responsible for both finance and sales. Additionally, we always bring in an expert for a specific industry, for example, a CEO with extensive experience specialized in that area. For instance, in MediGroup, we brought in an experienced leader from the medical sector, a Hungarian; in Mojim brendovima, we had an experienced manager from the FMCG sector, a Belgian; in Piramida, we engaged a German who was in the management of two of the largest companies in the industry. We also bring in new management. Of course, there is always resistance to change, but that quickly changes when results are seen. It was wonderful for me during the sale of Piramida when the management, which included some long-time employees, came out thrilled after the presentation to potential buyers and proudly commented on how well everyone looked and sounded. Generally, if you bring management to a level where they see their progress, all obstacles fall away. Of course, it is very important to reward them, both existing and new, so that they are properly incentivized if a certain price is achieved during the sale.

Read the full interview in the printed and digital edition of Lider.

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