The acquisition of the majority holding of Luminor by the world’s largest private capital firm Blackstone is the culmination of a series of major transactions that have seen Scandinavian investments replaced by money from the world beyond – Germany, London, China and USA.
“The spectrum of where investors come from has widened considerably,” said Toomas Prangli, leading partner at the Estonian office of law firm Sorainen. “One reason could be that those Scandinavian investors who have wanted to invest here have already done so. There are others of course, but the relative importance of Scandinavian investments has fallen compared to past years.”
Leading partner at law firm Ellex Raidla, Sven Papp, explained that Estonia and the other Baltic countries made it back onto the radar of major international investment funds two years ago with the sale of Starman.
Starman’s suitors included major U.S. private capital fund Providence and the legendary KKR widely seen as the creator of the private capital investment concept. Both lost Starman to Finnish telecommunications company Elisa. Providence acquired Sweden’s Modern Times Group’s Baltic businesses, including the Estonian TV network TV3 last year.
“If they are having a look, it peaks the interest of other major players that want to know what their competitors are looking at,” Sven Papp said. “It all started with the sale of Starman, yes.”
He said that the acquisition of Luminor is noteworthy because it is a lot of money for this region. Secondly, it is the banking sector the reputation of which has taken a big hit here. Thirdly, there is the Crimea factor.
“It seems investors have realized Putin’s Russia is not a problem in Estonia, even though it has been on people’s mind considering Russia’s close proximity – in terms of security of investments,” Papp explained. “As far as I’ve been involved in these kinds of discussions, the conclusion has been that there is no problem in the Baltics and that a parallel cannot be drawn between Crimea and the Baltics.”
While analysts were united in lamenting the exodus of foreign investors from the Baltics a little while ago, talking about the possible reasons investors have returned to Estonia and the other Baltic countries, the opinions of Prangli and Papp differ. Asked whether big money just happened to glance toward the Baltics, whether the region has become more attractive or whether central banks’ monetary policy has made investing so cheap that people are willing to pour money into anything, Sven Papp said that the availability of money and cheap loans is the reason.
“Who can tell for certain, but that is what I believe. There is a lot of money and cheap credit in the world, while jewels it can buy aren’t nearly as numerous,” Papp explained. He said that general business environment has improved considerably since the financial crisis of 2008-2009, investors’ confidence has returned and there is no longer talk of the weakness of the euro. At the same time, government bonds aren’t returning anything, and the stock market is a rollercoaster. That is why direct investments are the only place where one can make money. “Money looking for a home clearly outweighs profitable and sensible investment opportunities,” he added.
Toomas Prangli said that he never saw foreign capital leaving. “Foreign capital has been active in Estonia all along. Activity has been greater among Estonian investors,” Prangli said. The expert said that Estonian companies have started buying up competitors or ventures in other sectors and Estonian executives have become bolder, which is why he feels Estonians are also buying things back from foreign capital.
“Foreign investors’ interest in the Baltics never fell, rather Estonians became more interested in acquiring ventures. And that interest keeps growing,” Prangli said.
The consultant said that Baltic companies are growing and are starting to appear on the radars of investors from beyond Scandinavia.
“That alone is bringing in more investments,” he said. “In addition to American investors, we’ve also seen money from China. The Chinese have invested in Taxify and acquired Magnetic MRO the headquarters of which is in Estonia.”
The specialists are optimistic concerning the future and believe that news of other major transactions are in store, provided no great disaster takes place.
“Looking at what we have on the table, this party will probably last until the end of the year, and we’ll see what next year will bring,” Sven Papp said.
Asked whether more news could be expected this year, Papp said: “I believe there will be a few more things. However, things are so good right now, I doubt they can get better.”
Toomas Prangli also said that there are no signs of a cooldown, and that the volume of transactions should remain unchanged this year and in the first half of next year.
“Should we see the market flooded or a crash of some sort, some major deals will likely be put on ice; however, that might open the door for smaller transactions – if shareholders come back down to earth in terms of price expectations and are willing to sell,” Prangli explained.
Asked whether there is another billion deal on the horizon, Prangli laughed and said: “Let’s hope so. While it is difficult to forecast, we have companies that are worth a billion euros. Taxify was recently valued as a billion-euro company for instance.”