East Capital makes 2x on ELKO

The Eastern European manager, which sold its stake in one of Latvia’s largest IT distributors, sees the recovering Baltics as ripe with opportunities for investors.

East Capital, the Eastern European firm, has sold its equity interest in IT component and solution distributor ELKO Grupa.

The firm’s 8.8 percent stake has been acquired by ELKO’s existing shareholders. It was previously owned by three of East Capital’s funds: East Capital Bering New Europe Fund, East Capital Bering Russia Fund and East Capital Bering Ukraine Fund.

East Capital more than doubled its investment in the company, Gert Tiivas, head of East Capital Private Equity Baltic States, told Private Equity International. The firm will achieve a total return of 107 percent and an IRR of 11 percent upon completion of the deal.

ELKO is one of the largest IT wholesalers in Eastern Europe, with a focus on computer and electronic products in the Baltics, Central and Eastern Europe, and CIS member states. Founded in 1993, it is the number one distributor of Intel products in Russia, Latvia, Estonia and Slovakia, and features in the top 3 for the EMEA region. The company is also involved into retail in Russia, Tiivas said.

East Capital first backed ELKO in 2005, via a growth capital equity investment. “In the Baltics, which are small markets, we look for companies that are able to grow outside and be successful regional players. ELKO very much hit that description,” said Tiivas. It then provided the company with debt financing during the financial crisis.

Such support has allowed the company to thrive in a difficult environment, said Egon Mednis, president of ELKO. “We have doubled the number of products we offer, built a solid customer and vendor portfolio, further strengthening our leadership positions in the region. Despite the unpleasant economic situation around the world, during the years of cooperation ELKO’s turnover has increased more than 1.5 times.”

Latvia was the country that suffered the worst recession in Europe during the financial crisis. Its annual GDP growth rate shrunk by nearly 25 per cent in 2009-2010, a period that also saw its government receive an emergency bailout loan of €7.5 billion from the International Monetary Fund and the European Union. The economy has since enjoyed a strong rebound, recording a 5.5 per cent growth rate in 2011.

The Baltics are now a very good space to explore for fund managers, Tiivas said. “Continued reforms and export-led growth have made the Baltics one of the most attractive destinations for investment.” He explained that the firm would continue to be looking for local, consumer-driven companies, as well as export-driven ones.

East Capital was created in 1997 to invest in the Eastern European and Chinese markets. Headquartered in Stockholm, it currently manages €3.8 billion in public equity, private equity and real estate.