Text of the article is translated from Russian language (Прилагая общие усилия)

Author: Ms.Rabiga Abdikerimova (Business and Vlast' weekly newspaper № 17 (494) dated May 23, 2014 г.)

www.and.kz/userfiles/books/xrss_b&v_17_2014.pdfd20140523032959.pdf

As it is known, today the deficit in the “long-term money” exists at Kazakhstan market, which significantly slows-down the growth of many organizations, the entire sectors and even the country’s economy in general. At this background the entire market needs some other business approaches with respect to additional financing. One of such approaches is represented by the services offered by the private equity funds (PE funds).

Today the main player at Kazakhstan private equity market is “Kazyna Capital Management” JSC in composition of the group of companies of “Baiterek National Holding” JSC. This is evidenced by the large-scale nature of the company’s strategic portfolio, comprising of 11 funds with the total current capitalization of $2,5 billion. Every of these funds may invest in several companies simultaneously.

The PE funds enter the companies for a certain period of time, usually for 3-5 years. In this connection PE fund’s participation does not exclude other sources of financing. According to Investment Director of ADM Capital (funds under management: “Kazakhstan Growth Fund” and “ADM Kazakhstan Capital Restructuring Fund”) Mr. Adil Oszhigit, in case of direct investments one project may peacefully get along well with the bank loan and direct investments.

But money is not all, what may be offered by PE funds. Due to work with PE funds the companies may have some other opportunities in addition to capital. As the expert says, they include sharing of risks by PE funds with the current company owners, the experience provided in the field of business conducting of the funds management companies, their opportunities for attraction of the best specialists for crisis situations resolution, increasing the business value and etc.. All these things together create additional advantages for the company with respect to its competitors at the market, help to achieve business growth and improve capitalization. Joint work may also allow to the companies to find a strategic partner or enter the stock exchange market, and to PE funds – to earn good profit from sale of the company.

“PE funds usually do not change the company’s management for the new one, since they are financial investors. Operating management is maintained by the business owners. PE funds from their part appoint their financial directors or supervisors to the companies in order to place the company’s financial flows under the funds’ monitoring, as well as to trace that the funds invested by PE funds are used for the purposes, negotiated upon signing of the investment agreements. That is why at Due Diligence PE funds pay a lot of attention not only to correspondence of the financial and legal information to the current condition, but also to the experience and abilities of the current management to realize the plans set to them by the current owners jointly with PE funds within the frameworks of the investment program being implemented”, - explains Mr. Oszhigit.

Full replacement of the company’s management with the new one may be considered only if the project itself represents, for example, the takeover-transaction, when PE funds acquire the controlling stake, usually exceeding 75% + 1 share and more, and, actually become full owners of the business. According to Mr. Oszhigit, such transactions are usually conducted with respect to the companies, the current situation in which requires the immediate measures, where management is not able to cope with its responsibilities and must be replaced, but the business owners have neither funds nor wish to deal with the company further, and they are ready to sell their business in full.

Experience that PE Funds bring to the companies in which they invested a capital can be considered on actual example. According to CIO of “Falah Growth Fund” Mr. David Herbada, typically PE funds bring in-house expertise regarding capital structures. “Sometimes PE funds bring specific financial skills such as turnaround and structuring and in most cases either directly or via the identification of experienced professionals the operational expertise required to improve the day to day results of the companies”.

Case example is the Alsad Kazakhstan. Falah Growth Fund structured the financing and restructured the package: “We also brought a new professional management team, have attracted an international poultry and business experts who have been able to bring the farm back on track after acquisition and restructuring and then up to international best practices and benchmarks”.

One of the main functions of the PE funds due to Mr. Herbada is getting well with employees of companies who need to walk out from comfort zone and deal with change. “Typically humans resist change and PE tends to bring significant changes about into the businesses hence there is always and will be always some adverse initial reaction. It is up to the investment teams to set incentives for existing employees so the interests are aligned, however it is inevitable that some employees will not be able or willing to adapt and decide to leave, which is a reality of business in a changing world with or without PE funds investing” – share the experience Mr. Herbada