Livonia Boosts Baltic Private Equity Niche With $117 Million

Livonia Partners, a new investment company minority owned by Estonia’s LHV Group AS, wants to boost investor access to private companies in the three Baltic economies, among the fastest-growing in the European Union.

The company, which is still being registered, already has “significant commitments” for its 85 million-euro ($117 million) Livonia fund, Mindaugas Utkevicius, a founding partner, said on Oct. 26 by phone in Vilnius, Lithuania. The head of the European Investment Fund last week said the EIF plans to contribute as much as 20 million euros, he said.

The Baltic Innovation Fund, through which the Luxembourg-based EIF would invest in Livonia, seeks to develop the Baltic’s equity markets. While the Latvian, Estonian and Lithuanian economies grew 5 percent, 3.9 percent and 3.7 percent last year, the region’s 79 publicly traded companies often see less than 1 million euros of combined share turnover a day.

“We see a private equity niche here,” said Utkevicius, who’s also a partner at Tallinn, Estonia-based LHV Capital. Most of the money will come from pension funds and similar investors in the Baltic and Nordic countries, with some from other parts of central and eastern Europe as well, he said.

Large Entrant

Livonia’s target size is “truly very big” in the context of existing Baltic private equity investments, Swedbank wealth manager Andrius Suminas said by phone in Vilnius.

“This is great news, showing more and more investors are trusting the Baltics’ impressive economic story,” Suminas said. “It also means more competition to find and further develop the region’s most promising, reliable companies.”

In the hunt for investors and attractive companies, Livonia will compete with BaltCap Management Ltd., which is fundraising for its 100 million-euro Baltic Investment Fund II LP. Other competitors include smaller Baltic funds run by LitCapital Asset Management and Practica Capital, as well as private equity funds from Scandinavia and Poland that include Baltic companies.

“Not to worry, we have a strong pipeline” of potential investments, Utkevicius said. He said the Livonia fund plans to buy stakes in eight to 12 Baltic firms within five years, ideally starting in the first half of 2014.

EIF Negotiations

The EIF has completed due diligence and received board approval to negotiate contracts for investments in both the Livonia and the BaltCap funds, EIF equity fund investments manager Monica Vandervorst said by phone from Luxembourg today.

“There’s not a legal commitment yet,” Vandervorst said. If the talks succeed, both contracts could be signed by year-end, she said.

EIF Chief Executive Officer Richard Pelly spoke publicly about the planned Livonia investment at a conference last week, according to Utkevicius. The EIF said in June it had selected BaltCap’s private equity fund for a 20 million-euro commitment.

Vandervorst said the EIF has a legal commitment of 30 million euros to a mezzanine fund managed by BPM Capital, with half coming from the Baltic Innovation Fund and half from a separate EIF mezzanine facility. BPM’s fund has a target size of 50 million euros, the EIF said on its website in February.

LHV Background

Utkevicius said Livonia’s other founding partners include LHV Group and its chairman, Rain Lohmus; Kaido Veske of LHV Capital; and Kristine Berzina, who is managing partner at Mindport SIA, an investment company based in Riga, Latvia.

Adam Saulius Vaina, a partner at the Tartu, Estonia-based management consulting firm Civitta, will join Livonia as a partner when the fund reaches its target size.

Utkevicius helps manage 15 million euros that LHV Capital has invested in private Baltic companies since 2005. That portfolio is being liquidated as the larger Livonia team of partners gets to work, he said.

LHV itself will own 10 percent of Livonia Partners, in keeping with EIF policy to invest only in independent teams, Vandervorst said. The fund manager could be based in Latvia, though it’s not yet decided, she said.

Return Record

LHV Capital this month sold Baltic Ticket Holding AS, which runs event ticketing companies in the Baltic countries and Belarus, to the unit of the St. Petersburg, Russia-based entertainment group PMI Corporation.

Utkevicius said LHV Capital met all return targets for its 2007 purchase of 65 percent of BTH. He declined to elaborate. In 2011, LHV Capital sold its majority stake in Veju Spektras UAB, a 30 megawatt Lithuanian wind park, to Inter RAO Lietuva AB, achieving a 20 percent internal rate of return on the 2005 investment, according to LHV Capital’s website.

Remaining to be sold are 100 percent of AB Archyvu Centras, which manages digital and physical archives for companies in the three Baltic countries, and a minority stake in Qvalitas Arstikeskus AS, an occupational health-care provider in Estonia, according to Utkevicius.

Livonia probably will extend LHV Capital’s investment focus on traditional business services companies to include manufacturers with strong export potential, he said. It will avoid areas such as real estate, lasers and biotechnologies, where the partners lack competencies.

“In any case we’ll be pan-Baltic, with partners based in each country, and will build on LHV Capital’s track record and relations with companies and investors,” Utkevicius said.

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