Articles
Capital Collection Agency
24.06.2010
Exclusive interview for Private Equity Russia&CIS Journal (PERCIS) of Dmitry Mokhnacev, CEO, Capital Collection Agency (portfolio comnpany of Mint II private equity fund under management of Mint Capital).
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Tell us please, what factors encouraged you to take steps to involve equity funds in the financial strategy of your company? When did you come up with the idea of attracting investments from these funds? When did you start to negotiate with them?
It became clear in 2008, that the potential of the delinquent debts market exceeded considerably the financial capabilities of its participants. In that situation, long-term investments were required. Another reason for us to welcome a fund as a partner was the possibility for us to access foreign contacts and new competencies.
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Did you have any knowledge or prior experience of the Russian private equity market?
Our financial consultant gave us all the necessary information about the private equity market. Therefore, we were well prepared for our first meetings with funds.
Who from your company was responsible for communication with funds and prepared required documentation? Who in the team was assigned to this task? How did you prepare your company for communication with funds? What documents have been prepared?
Our approach to the matter of finding an investor was very serious. Although at that time our business was relatively young, we hired the leading consultant of the “Big Four” for memorandum preparation and to advise on the search for an investor. That consultant has developed a financial model, prepared a company presentation and a database of potential investors to organize meetings with them. From our side the company was represented by the director of development, my partner and myself.
How many funds have you contacted?
We met most of the major players.
How long did it take from the first communication with Mint until closing the deal?
It took about a year from our first meeting until the first investment was received, that was a good result in a year of crisis. In addition, the reason for attracting a new investor was rather the wish to develop the agency than a need for cash. Although our company is young, at the time of the negotiation with this fund it was already quite large and self-sufficient.
Did the prices offered by the funds meet your expectations?
“Price” by definition cannot meet anyone’s expectations because the interests of the funds and the companies at the time of the deal are opposed. On the other hand, we must be realistic in pricing our business and evaluate intangible benefits of working with a fund (professional growth, contacts, etc.). We believe that the signed agreement is mutually beneficial for the both parties.
How did you search for suitable funds? What criteria did you use for that? Why have you chosen Mint Capital? What factors were decisive?
There were several factors. First, Mint had high competence in the debts collection market. At the time of our first contact, Mint had been following the development of the collection industry, had studied its mechanisms and had met with key players. This fact facilitated our negotiations considerably. Secondly, a Scandinavian partner was not a random choice, as the Scandinavian debt collection market is one of the most developed in Europe, while the Russian debt collection market is still in the stages of development and many procedures are intuitive. It was a good chance to make a great leap forward based on the experience of Western companies. We expected Mint Capital to help us to establish business contacts with European collection companies. Our expectations were met. In the first quarter of 2010, the Swedish collection company Svea Ekomoni AB, one of the key players in the North European market, became a minority shareholder of Capital Collection Agency (CCA). It happened only ten months after signing the agreement with Mint Capital.
The basic agreement makes provisions for Svea Ekomoni’s investments in the share capital of CCA. Along with this, we have agreed to establish a joint company, assigned to work in the delinquent debts market in Russia. The sum of the start-up investment in this project is approximately $6 million. The company will start to work in the Russian market in the second quarter of 2010. In the future, we will consider the involvement of other foreign partners in this project.
How exactly did Mint help your company?
Svea, undoubtedly, was interested in expansion into the Russian debt collection market. On the other hand, if Mint was not one of our shareholders and CCA was not on a certain operational level, Swedes would hardly have dared to invest in Russia. The presence of a foreign private equity fund among a company’s shareholders knowingly assumes transparency of business as well as a certain level of corporate management professionalism and strategic planning. Of course, the fact that the financial investor also comes from Scandinavia did not play the least significant role in facilitating our negotiations. Involvement of an investor considerably increases attractiveness of a company; it is easier to invest in a project if your colleagues are already successfully working there. This is confirmed by the fact that we have become considerably more active in our negotiations with many interested investors.
Currently, Mint is a shareholder of your company. How is Mint Capital involved in the operational and strategic management of the company?
Mint is an active minority shareholder that we are quite satisfied with. The fund managers are not only participating in the Advisory Council, but are also taking part in important operational decisions. The acquisition of large portfolios of debts requires their approval as well.
What competences have been brought to your agency by the fund? Does your cooperation turn into a synergy?
I can say that we have reached a tacit division of responsibilities: the agency is responsible for operation, while Mint is in charge of budgeting, fundraising and financial modelling. However, we remain flexible on this subject, and all fundamental decisions we make together.
Can you give an example of a situation when the fund supported you in accomplishing of your goals?
I have already mentioned their help in fundraising. However, this is not the only benefit we have. For example, the fund has many portfolio companies; therefore, it is easier for us to get considerable discounts from consultants.
What kind of innovations have occurred since the fund became a shareholder?
In corporate management there have been some changes, such as implementation of an Advisory Council and new regulations for the Board (their members meet at least once per month), preparation of internal reports according to the International Financial Reporting Standards (IFRS). In operational management, the reporting system has been adjusted as well, in order to be closer to the international standards (IFRS).
In order to close the deal with the fund you developed the strategy some years ahead. What are your main goals for this period? What options of exit do you offer to the fund?
Our main goals are to become the leader of the market and to reach high profitability. Companies with high profitability and large market share are the most attractive for investors. Therefore, we are extending and assimilating western techniques at the same time. There are several options for the exit of the fund, but it is too early to speak about details. Generally, we are very interested in cooperation with a foreign strategic investor.
What advice or recommendation can you give to companies considering the possibility of bringing in a fund as an investor? How to choose a potential investor? What mistakes to avoid? What are the key factors of success?
First, you have to understand clearly that you are selling a share of your business for at least 3-4 years. As the received investments are normally spent within one to two years, from the very beginning you have to choose a fund which will bring you useful competences and contacts so that you will get the maximum benefit out of this cooperation. Do not expect the deal to be closed fast, the money could arrive to your company after half a year, for example. That is why be realistic while evaluating the financial situation of your company. One more piece of advice: you have to be comfortable while dealing with the fund representatives since you would have 3-4 years of close interaction. Rely on the fund. Funds have a large portfolio that will allow you to develop your competence in different fields.
