Women in PE: Avallon's Pakulska on fundraising, exits and the role of sport in business

As a partner at Avallon, Pakulska is part of the investment team, responsible for all stages of the investment process including sourcing transactions, value creation and exit. Since becoming a partner in January 2020, she was also involved in the fundraising process for Avallon MBO Fund III, totaling EUR 137m.

The GP is now planning to raise a new vehicle, Avallon MBO Fund IV, Pakulska said. As with the previous funds (Fund I, EUR 50m; Fund II, EUR 109m; Fund III, EUR 137m), Avallon has ambitions to increase its size. Asked if it would be proportionally larger than the previous ones, Pakulska said: "even bigger." It could launch around 2024 or 2025, she said, cautioning that it depends on the market conditions and the allocation of the current cash.

Similarly to the previous funds, Avallon will concentrate on MBOs, primarily in Poland and the CEE countries, she said. It does not have a specific sector focus, she added. Along with the expected increase in the scale of the fund, the size of the potential targets will increase as well, she said.

The early years for Fund III (launched in 2019) were not easy for Avallon. First, COVID-19 and now the war in Ukraine, have influenced the fund's approach. At present, the effective allocation of this fund is one of the priorities and challenges for Avallon. According to Pakulska, the geopolitical situation and market volatility made it difficult for fund managers to decide on new investments.

Navigating exits
Apart from the fundraising efforts, there are three potential exit candidates on the table from Fund II, Pakulska said, mentioning beverage producer Wosana, direct marketing company EDC Expert Direct Communications, and software solutions provider ORE (Marketplanet).

Wosana is the fund's priority in terms of the sale of the company, with PwC leading the process, she said. A potential deal is expected in 2023, she said. As previously reported, Wosana was acquired by Avallon in late 2017 and its sales have roughly doubled since, exceeding PLN 200m (EUR 42m) in 2021.

EDC Expert Direct Communications’ controlling stake was acquired by Avallon in mid-2015, as reported. In 2021, EDC generated PLN 69m (EUR 14.4m) in revenues and is expected to generate PLN 73.3m (EUR 15.3m) in 2022, according to Polish Companies House records.

Marketplanet was acquired from Polish telco Orange Polska
in an MBO supported by Avallon in 2013, as reported by Unquote sister publication Mergermarket. In 2021, the company posted PLN 18.1m (USD 4.2m) in revenue, and EBITDA at PLN 2.1m (EUR 439,000), according to the report citing CEO Piotr Matysik.

Although Avallon aims to make exits from these companies, it realises that it is not the perfect time for such moves, as the price may not reflect the value of the business, Pakulska noted.

This year so far, Avallon has realised two exits: building service systems provider Stangl Technik; and a polymer product maker Novo Tech. The GP has also made two new investments in Fund III: food additives producer Hortimex; and a network inventory software provider Globema.

Preparing for the worst
The volatile environment poses risks not just to potential deals, but also to existing portfolio companies. Indeed, Avallon is looking at how to protect the portfolio in times such as these, as well as how to drive the companies successfully towards exits. Some of the sponsor’s efforts include stricter cash monitoring, revising the capex strategy, and analysing different scenarios, including the darkest ones. “Although it’s worth defining the worst-case scenarios, luckily, these didn’t materialise at our companies. But at least we were prepared,” Pakulska noted

Avallon takes a cautious approach to new investments given the uncertain environment in which it has been operating for the past couple of years, attempting to define defensive business models. In many cases, that means pausing the discussions with potential targets for now and meeting again in a few months’ time to see if the risks are materialising.

Within its portfolio, laundry products manufacturer Clovin, which has a production site in Ukraine, faced particular challenges over the past two years, first with COVID-19 and now with the war.

“Protection of our employees was the number one issue for us,” Pakulska recalled, adding that the company brought some workers to Poland when the war started. At one point, the Ukrainian plant in Shostka was closed as there were multiple attacks by Russia in the city, she said, adding that the plant is now open again. “We are happy because we’ve managed to keep the jobs there.”

In spite of the challenging environment, within three years, the company increased its EBITDA by 43% (YE 2022), recruited experienced managers, and implemented a campaign calling for a change in the industry to stop using endocrine disrupting chemicals in their products. These chemicals can be found in plastic, detergents and other products, and are associated with various diseases such as fertility disorders, hormone-dependent cancers, and diabetes, according to the “My first poison” campaign website launched by Clovin.

As part of its ESG strategy, it has also committed to making factories more sustainable and providing 100% sustainable products (in terms of product ingredients reaching the level of Ecolable certificate or exceeding it) by 2025, she said.

Finding a balance
When working with the founders or managers of the companies, Avallon cares about such elements as chemistry, honesty, respect and trust.

According to Pakulska, sports interests play an important role, too: "I like when the managers have some sports hobbies, because sport has a lot to do with business. Effective planning, setting a strategy, and focusing on achieving goals are common elements in these two fields," she said.

Pakulska's career at Avallon started in 2006. Such a long stretch in the PE business gives her a unique perspective on how roles within the fund evolve, she said. A breakthrough moment in her career was an exit from a Polish personal hygiene products Velvet CARE, which generated a two-digit return on invested capital and eventually led to her reaching the partner position, she said.

But Pakulska’s career was not without its challenges. The decision to have children while continuing a career was one of these, she said. That is why Pakulska decided to take on a strategic approach to maternity leave – planning out all the details of her absence with both the management of the fund and the portfolio companies. At one point, she said, she was “close” to two important projects happening in one of the portfolio companies, despite being on a leave. However, she noted, it was her choice only, and with the support of her family she was able to keep the balance.

Pakulska is engaged in various diversity programs, taking part in the Polish chapter of the Level20 initiative, which aims to increase the visibility of women leaders in private equity.

Although involved in diversity and ESG efforts, gender parity is not a dealbreaker for her when making investment decisions: "We primarily think about the space for improvements,” she said. “Of course, we monitor KPIs in terms of diversity and our commitments to investors. But even if the parity is not there at the beginning of the investment process, we don't treat it as a deal breaker, but as a case to further work on the issue. We sit down, plan how to change it and work towards achieving that goal."

Asked for tips for other women looking to enter the industry, Pakulska said that careful planning helps. It is also worth starting out by getting experience in corporate banking and M&A advisory, she added. At present, Pakulska runs an initiative called “Outreach” (as part of Level20) which aims to familiarise women students with the PE subject and encourage them to consider careers in PE.

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