How the Most Powerful People in Croatian Funds Choose Their Targets

The success of Vodnjan’s Infobip has long surpassed Croatian borders after this IT company became a globally relevant player in the field of messaging software. However, the development of this company into the first Croatian unicorn would not have been possible without private equity (PE) funds. Although it has not achieved such global success, the supermarket chain Studenac has made a quantum leap in business since the entry of PE capital. Before the entry of venture capital in 2018, this retail chain had fewer than 390 stores, mostly in Dalmatia. Targeting mainly family chains of local stores, under the umbrella of Studenac, there are now 1,200 stores across the country, including Zagreb. With a market share of six percent, last year’s revenue of this retailer reached 700 million euros.

These two examples clearly demonstrate what the entry of a private equity fund can mean for a company. Primarily due to the amount of capital these funds have at their disposal. And it is not negligible. Currently, there are nineteen domestic and regional private equity fund management companies in Croatia, managing over 3.2 billion euros, which is, for illustration, half the amount of loans that domestic banks have allocated to companies for investments. But who are the people in PE funds who decide where this money will be invested? How to attract them to invest? Do they clash with existing owners over business strategy or do they serve as a shoulder to cry on? After all, where do they get such billions of euros in capital and how do they account to their investors?

Four Key Criteria

The most recent investment by PE funds is the entry of Inver Equity Partners into the ownership of the ticket sales platform Entrio at the end of June, worth nine million euros. This is Inver’s fourth investment, following the Museum of Illusions, the Slovenian manufacturer of mobile homes Marles, and the online price comparison search engine Kompare, emphasizes partner in the company Slaven Kordić.

– Each of these investments shares several key touchpoints. For example, a proven business model, the possibility of expansion into new markets, i.e., the scalability of the concept, investment in the brand, and increasing operational efficiency are present in each of our investments – explains Kordić, announcing new investments soon.

The most well-known investment to the general public is in the Museum of Illusions, and Kordić points out that before Inver’s entry into ownership, it was already a successful entertainment-educational concept that was expanding mainly through franchising.

– We recognized the opportunity for further growth by expanding the franchise model, but also by opening our own museums. We saw a great opportunity for business development in America, which we set as one of our strategic priorities. Today, the Museum of Illusions, as the largest chain of private museums in the world, demonstrates global success as one of the few B2C brands from this area with revenues that will exceed 170 million euros this year, including franchise and own museums – emphasizes Kordić.

In addition to domestic pension funds, the European Bank for Reconstruction and Development (EBRD) and the European Investment Fund (EIF) have invested in Inver. Kordić says that PE funds have no problem raising capital as investors increasingly recognize the ability to discover and develop quality domestic and regional companies with high growth potential and achieve above-average returns.

Bank and Wealthy Individuals’ Money

In addition to institutional investors, part of the 150 million euros that Provectus Capital Partners has invested over the past four years also comes from family offices managing the assets of wealthy families, reveals Igor Čičak, the main partner responsible for investment activities and chairman of the Investment Committee. He says that in this company, they pay a lot of attention to relationships with investors.

– It is crucial to build mutual trust and understanding of the investment policy, but equally the risks arising from these investments. We have quality and continuous communication, and reporting is standardized. Additionally, we hold an ‘Investors Day’, an annual meeting with investors where we present our investments and plans in detail – explains Čičak.

However, this does not mean that institutional or individual investors will inject millions of euros into just anyone who says they would establish a private equity fund.

Read the full article about fund managers and how they choose where to invest in the printed and digital edition of Lider.