Why Croatian Entrepreneurs Do Not Buy Companies Around the World?

First, the Turkish conglomerate Yildirim announced that it had purchased a majority stake in Kutina’s Petrokemija. Then, Lider was the first to report that the company Pervanovo, owned by Swedish entrepreneur of Croatian descent Darko Pervan, had acquired a majority stake in Požega’s Spin Valis. The third sale concerns Rijeka’s Jadran Hotels, which was purchased from local entrepreneurs by the Israeli group Brown Hotels.

Unfortunately, but as expected, there has been no news that any Croatian entrepreneur or Croatian investment fund has purchased even a micro-company abroad. Croatian entrepreneurship in the fall of 2022, it is confirmed, is inefficient in defense as well as in attack in the international acquisition competition (we have an extensive topic on this in this issue of Lider). There is some blame among domestic entrepreneurial ranks, but the main cause is still the systematic devaluation of any ambitious local quality entrepreneur.

Siphoning of Domestic Companies

In thirty years, no government, including the current one, has been interested in constructive partnership with domestic businessmen. The general public also treats players who should ensure added value from which quality growth can be built, raise wages, and standards, roughly and indiscriminately. The abuse of the healthy part of entrepreneurship is now rapidly coming due. With far-reaching consequences.

It is legitimate to ask why local owners of medium and large companies are in such a defensive position. Why do they lack the will, and it seems, the money, to pursue acquisitions? There are several causes, and the one that initiated the collapse occurred a quarter of a century ago. Besides handing over companies to the suitable (Miroslav Kutle, Josip Gucić…) who quickly siphoned all the money and drove companies into bankruptcy, directors were offered to buy companies with managerial loans. Since the acquirers had no money, they drained the finances of the companies to pay the state for the shares. The companies were left without money for development and have not recovered since then.

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Then, during the recession in 2009, the then Prime Minister Jadranka Kosor introduced a crisis tax (‘tax’) and indirectly, through prolonged recession, further siphoned money from companies. Now, the siphoning of the barely patched money for development and acquisitions, according to the ‘brilliant’ directive from Brussels, is intended to be implemented through a tax on excess profits. It seems that Finance Minister Marko Primorac is uncomfortable announcing this tax, but what can be done when one must listen to the nonsense from the European Commission. Because the domestic budget, not to mention the government, has become dependent on five billion euros from European Union funds. It is not wise to offend the loan shark.

In Croatia, there is no ecosystem that supports, let alone encourages, larger entrepreneurs to pursue acquisitions. During a recent visit, Turkish President Recep Tayyip Erdoğan set a goal for numerous businessmen in his entourage to raise trade with Croatia to five billion dollars a year. Perhaps this is megalomaniacal, but everyone will receive a push to achieve their acquisition plans. If the state had provided Ivica Todorić with low-interest loans during the development phase, along with corporate governance obligations and timely payments to suppliers, he probably would not have ended up with Russians as creditors.

Successfully Extinguished Ambitions

After the collapse of Agrokor, the already modest ambitions for expansion beyond Croatia (Adris, Atlantic…) have diminished. Founders, who have since entered the years when one becomes more cautious, have opted for organic-conservative growth. Those who have not yet sold their company are struggling with the transition to the second generation. The government does not care at all about this. In some countries, when the time comes for founders to hand over the business to their children, the state provides tax incentives. The Croatian government is preparing to introduce an extra tax and help them decide to sell to foreigners. And to transition into rental real estate businesses. When it is added that the prerequisite for foreign acquisitions is the initial orientation towards exporting goods, and only 15 percent of Croatian companies export, it is clear how few ambitious candidates there are. At least 50 percent of companies that successfully (often with established bribery schemes) live off selling goods and services to the state are not interested in acquiring companies in other countries.

Is it too late for any turnaround? Not everything is lost yet. Consolidators, and then foreign acquirers, besides the Enna group (which is currently only acquiring within Croatia), could be Končar, Podravka, and a few more domestic systems. It is a difficult assumption that the government will stop viewing the last domestic Mohicans merely as collectors and deliverers of VAT to the state treasury.