EBRD spends on shops

The EBRD’s fund is getting a stake in “Rosinka” and “Sberegaika” food retailers

 Volga River Growth fund, whose anchor investor is European Bank for Reconstruction and Development (EBRD), is providing finance for acquisition of Orel-based “Sberegaika” food retail chain by Lipetsk-based “Rosinka” food retailer. The fund will hold a stake in the combined company. It hopes to resell this stake in several years time and generate return of over 25% p.a.

The mezzanine fund Volga River Growth is extending USD 30 million to Lipetsk-based food retailer “Rosinka” (63 shops) to buy 100% of Orel chain “Sberegaika” (60 shops), said managing partner of New Russia Growth, exclsive consultant to the fund, Egor Klimenko. The deal was signed yesterday, he added.

The acquisition will result in combined company managing 123 stores in Lipetsk, Voronezh, Orel, Kursk and Tambov regions with total floor area of 36.5 thousand sq.m. and expected sales of over RUB 5 billon (about USD 160 million) in 2011. “Sberegaika” was valued at USD 46 million, i.e. 7 x EBITDA 2011(E).

Representatives of CJSC “Palada Torg”, managing company of “Sberegaika”, were not available for comments. Irog Tinkov, CEO of “Rosinka” group, confirmed that all the “Sberegaika” outlets would be rebranded, OJSC “Regionproduct” would become the holding company of the combined retail chain and that the fund receives 25% stake in the business. When asked if “Sberegaika” was acquired from affiliates of Nikolai Cheplov (who is believed to be one of its main beneficiary owners), Mr. Tinkov replied that “negotiations were with completely different people”. He also added that alongside the fund the deal was financed by one of “Rosinka” parnters – Lipetskcombank, part of “Zenith” banking group partly owned by Vladimir Lesin. Representatives of “Zenith” were not available for comments yesterday.

Volga River Growth mezzanine fund with target capital of USD 250 million is focusing on financing of consolidation deals in a range of industries. Target deal size for the fund is USD 30-40 million invested for 4-5 years. EBRD is the anchor investor of the fund. EBRD already has some assets in Russian food retail: in 2006 the bank bought 11% of “Lenta” (food retail chain in St. Petersburg), and increased its share to about 20% in 2011.

Financing was extended in form of a loan with low interest rate and repayments starting in 4-5 years, explained Mr. Klimenko. In addition Volga River Growth receives a stake in the company which, hopefully, will generate additional return to the fund.

Oleg Tsarkov, managing director of Svarog Capital (former “Renova Capital”), remarked that mezz funds usually expect to get 20% p.a. on such transactions. According to Mr. Klimenko, expectations are 25% p.a. However it might not be easy to sell the fund’s shares in “Regionproduct”, as there are not many buyers interested in regional retailers, thinks Mr. Tsarkov. “Chances are there will be no profit for the fund in the deal at all. Federal retail chains are not interested in profitability of regional businesses they acquire, just in number of shops and quality and location of premises”, said Mr. Tsarkov. 

Nevertheless, investment funds often target regional retail. For example, Russian Retail Growth Fund (RRGF), with Victor Vekselberg and Alexander Mamut as key investors, owns about 23% of Novosibirsk-based “Holiday Classic” and blocking stake in Russian part of Holland chain of supermarkets “Spar”. In 2007 CentreInvest Capital Partners (Gleb Fetisov) bought 85% of “Meridian” chain in Belgorod. In 2007 Bering Vostok Capital Partners and Eagle Venture Partners consolidated over 70% of Chelyabinsk-based retail chain “Nezabudka”. The funds planned to sell it, but the company went bust in 2008.

There were not many mergers in food retail sector this year. “Magnit” bought “Pyatachok” retail chain (14 shops in Tambov region). X5 Retail Group (“Perekrestok”, “Pyaterochka”, “Karusel” and other retail chains) acquired “Narodnyi” (24 shops in Naberezhnie Chelni) and also got permission of antitrust regulator to buy Kirov-based chains “Economnaya semiya” and “Mir productov” (23 shops in total).

Kristina Busko, Ksenia Schamakina, Eugeny Timoschinov,   Voronezh.