Agista looking to boost presence of Romanian entrepreneurs on stock exchange

With planned investments in 20 Romanian companies until 2023, Agista Investments is a newly launched closed growth fund that wants to see more entrepreneurial companies going public. Nicolae Kovacs, the CEO of Agista, spoke to BR about the stock exchange’s significant potential to attract some of the EUR 35 billion being kept by Romanians in bank deposits and provided insights into the planned launch of the new accelerator.

By Ovidiu Posirca

What type of fund is Agista and what is your portfolio strategy built on?

Agista Investments is a closed growth investment fund that aims to invest in high-growth private and public equities that operate in all of Romania’s strategic sectors. We feel that there is a financial intermediation shortage on the Romanian market, and we’re looking to invest in companies that have three major qualities: a proven product or service, a proper growing market, and the internal scaling capability to ensure that the capital we deploy will create the expected added value and boost the company’s value in the long term. The end goal is to get the private companies in which we invest listed and, down the line, to have a high-growth stock portfolio listed on the Bucharest Stock Exchange (BVB), on both the main and AeRO markets.

More specifically, we are looking to acquire minority stakes, seeking to be an anchor investor and active partner to support growth by deploying capital, but also to provide know-how, reputation, and group synergies. We typically invest over a mid-long term of three to five years, and we take a board seat for strategic guidance. Agista aims to invest at any of the following stages: Pre-IPO, Private Placement, IPO, and listed equities.

What factors do you analyse when planning to invest in an emerging company?

As a general modus operandi, we invest in high-growth companies that seek capital to ramp up expansion, either via M&A transactions or by boosting their production capabilities¬—most often both. The optimal size for these companies’ annual turnover is between EUR 3 and 15 million. We seek to understand their product and market potential, but even more importantly, we are looking to invest in people and their vision and capability to

deliver the agreed upon results. Our ticket size per investment varies depending on the company size and potential, ranging between EUR 0.5 and 2.5 million. Our strategy is to accelerate their growth plans either by acquiring a competitor or by expanding production capabilities or product lines.

We believe that the Romanian market is undergoing consolidation right now, and this process is generating robust players that could champion the stock market in the long term. We will list most of these companies on the AeRO market to begin with, then move to the main market within two to three years.

What is Agista’s investment target? Do you plan to list the fund in the coming period?

The plan is to assess over 150 companies in 2022, and we have already met with more than 60 this year. We expect to have invested in 20 companies by the end of 2023. This will include both listed and unlisted firms, but most of them will be private (pre-IPO).

We intend attract more capital at the end of 2023 and we will seek to list Agista on the BVB main market in 2024.

Will Agista remain local or do you plan to expand regionally in the coming years?

Our strategy is to invest in local SMEs that want to expand regionally, therefore to create robust regional players. We think that companies that don't manage to consolidate in the medium term will ultimately be acquired. From our interactions with local entrepreneurs, we have determined that they want to partner up with us not only for the capital, but also for the know-how and synergies we can provide.

How open are Romanian entrepreneurs to listing their companies on the Bucharest Stock Exchange (BVB)?

We think that entrepreneurs are beginning to open up to the idea of listing because they have understood the benefits of the stock market, and this is especially true of those operating in highly competitive HR markets, such as IT.

Many entrepreneurs are wary of listing this year because they believe that valuations are currently discounted due to the elements of uncertainty that have been floating around for the last few months, whether we’re talking about inflation, the war in Ukraine or other sector-specific issues. This is the reason why we have seen fewer listings or private placements this year.

Is the domestic capital market becoming a competitive financing instrument for SMEs?

If we look at the total local market capitalisation versus GDP, we can see that it’s currently at 13 percent, which is very low compared to 29 percent in Poland, 35 percent in Austria, and over 55 percent in Germany, not to mention the US, where it accounted for 194.9 percent of its GDP in 2020. We believe that this ratio points to an opportunity for SMEs to grow through the capital market, where they can access the capital they need to finance development.

Combined with the fact that over EUR 33.5 billion were sitting in banks as the population’s deposits at the end of February this year, mostly earning negative real interest due to inflation, we think that more robust listed companies can and will help attract some of that money to the stock market in the future.

Are you planning to join the startup ecosystem either through acceleration programmes or direct investments?

We intend to support the entire business ecosystem based on their specific needs and we believe that small companies deserve a fighting chance. Therefore, Agista and its partners will start an acceleration programme dedicated to small businesses with a turnover below EUR 3 million, to help create strong players in the future.

Agista’s accelerator programme will be launched later this year and it will provide small companies not only with capital, but also with vital know-how about growth, resources to overcome HR and financial structure challenges, and ways to build better corporate governance, acquire management skills, and access the Impetum Group community where they can identify synergies and try different management tools for a fast and solid growth. After graduating the programme, the businesses will also qualify for a capital investment from Agista.

Which industries are in a good position to harness the capital market’s development potential?

We believe that the IT industry has great potential to stand out thanks to the talented pool of IT graduates and professionals, but also in the context of Romania’s digitalization

needs. Apart from IT, we will also be seeking to invest in healthcare, waste management, energy, and agriculture, but this list is not finite.

How can entrepreneurial companies remain competitive given the current economic picture which is marked by high inflation and growing interest rates?

Depending on the industry, businesses will absorb some of the increased cost to avoid losing customers. To remain competitive in the current circumstances, they must become more efficient, whether that means to invest more in digitalization, cut spending or seek alternative suppliers. Some entrepreneurs will have a hard time over the next few years, and this will ultimately lead to consolidation on the market.

As a country, I think the current circumstances have unwantedly delivered a great chance to invest in production capabilities that could make us less dependent on imports and turn us into exporters. Today, we are actively importing inflation, either via energy or finished products, and this trend needs to shift for long term prosperity.