Mezzanine Management in first Lithuanian PE deal since euro adoption

Alice Murray
18 February 2015

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Mezzanine Management has invested €7m in commercial refrigeration business Freor, marking the first Lithuanian private equity deal since the country joined the euro, unquote" has learned

Mezzanine Management invested a combination of equity and mezzanine debt through its Accession Mezzanine Capital III fund. The GP took a minority stake in the company.

The deal was driven by a shareholder restructure, and the fresh capital will be used to support the company's development.

According to Piotr Sadowiski, senior investment director at Mezzanine Management, the deal was attractive because of Freor's modern production base and quality products. "The market trends are also favourable – the supermarkets and grocery chains continue to expand while remaining competitive. This means they are under pressure to keep their shops attractive for clients and, hence, invest in refurbishment," Sadowiski added.

He also pointed out that growing demand for energy efficiency, driven by the eventual cost savings, makes Freon an attractive investment as its products are energy-efficient and competitively priced.

Following the transaction, the GP will support Freor by expanding into new markets, while also trying to increase sales to existing clients and markets.

The deal marks the first private equity transaction since Lithuania joined the euro at the start of the year. Using unquote" data to assess the correlation between countries joining the euro and private equity activity reveals an interesting trend. Prior to Estonia's adoption of the euro in 2011, there were six deals recorded in the country in 2010. However, in 2011 there were just two deals. While this is likely to be symptomatic of the wider financial downturn – 2011 was a quiet year for M&A activity moreover – it also signals a rise in deals prior to joining, a drop in the year of joining and a steady increase over the following years.

Looking to Latvia, which joined the euro in 2014, the trend continues – with just two deals recorded in 2014, down from five in 2012.

The data suggests Lithuania could have a quiet year when it comes to private equity activity – although local practitioners disagree, with many positive towards increased activity this year. The main reason for the optimistic view is that Lithuania has increased its attractiveness for private equity deals by adopting the euro, as targets will benefit from increased ease of business and reduced spending on currency conversion. Furthermore, Lithuania has attractive market fundamentals, with the World Bank predicting the country's GDP will grow by 3.2% in 2015, 3.5% in 2016 and 3.7% in 2017, representing one of the fastest growth rates in Europe.

Seven weeks into the year with only one deal done could spell a slow year in terms of private equity for Lithuania, however, as local businesses acclimatise themselves to their new environment.

Company
Lithuania-based Freor is a producer of commercial refrigeration equipment – its products are used predominantly in supermarkets. The company operates from offices in Lithuania, and subsidiaries in Belarus and Russia. Clients hail from the Baltics, eastern and western Europe.

The company was established in 2000. Freor generates revenues of €17m.

People
Rytis Bernatonis is the founder and CEO of Freor. Piotr Sadowski, senior investment director, led the deal for Mezzanine Management.

Advisers
Equity – Deloitte (Financial due diligence); Raidla Lejins & Norcous (Legal).
Company – Sorainen (Legal); Baltic Corporate Finance (Corporate finance); Fort (Legal).