When entrepreneurs reach the stage of acquisition or merger, consultants come into play. On a global scale, there are several major players in this field involved in nearly all significant transactions, but there are also local consultants everywhere who manage to get involved in local and regional deals.
“We are pleased that during a challenging period, considering various events, our company has achieved some of its greatest successes in recent years by completing six consecutive deals in 18 months,” says Evgeni Kanev, managing partner at the deal advisory firm Maconis LLC. He highlights the particularly challenging period of the last two years, starting with the COVID-19 pandemic and the difficult economic activity.
“Maconis” is a boutique company specialized in corporate finance-related services, with its primary focus on advisory in mergers and acquisitions. In this line of business, the company’s team often deals with transactions involving foreign investors entering Bulgaria, as well as their exit strategies. According to Kanev, in addition to integration and consolidation in certain sectors of the Bulgarian economy in recent years, there have been increasingly deals for vertical integration with a supplier buying its customer or vice versa. There have also been cases where Bulgarian companies from being only the targets of acquisitions by foreign companies are becoming aacqureres of business abroad. “We were advisors to a not-so-well-known but very good Bulgarian company that acquired a similar one in Italy,” he shares.
In this deal, the German company Sesotec is selling its Italian division, Advanced Sorting Machines, and the buyer is the Bulgarian company “Elica Group.” For Evgeni Kanev, the deal is interesting because it takes place in accordance with the new reality imposed after the outbreak of the pandemic. Negotiations begin in Germany, but in early 2020, Italy is closed to foreign visitors, and the negotiations shift almost entirely to an online environment. Even the due diligence is conducted only online, which poses a new challenge for the advisory company. “In this case, it was critical to assess the seller’s level of preparedness, but there were no surprises; the Germans handled their affairs very carefully,” says Kanev. On the other hand, the manager of the selling company was an Italian, who remained in his position and had to be somehow neutral during the negotiations. Despite the difficulties, the deal was successfully completed. “Business and the world are moving in this direction – more and more research and transactions are taking place online,” adds Kanev.
According to him, many interesting deals in recent years have been happening in connection with the reshuffling in the IT sector. As a result of these deals, Bulgarian technology companies and startups are being acquired or merging with foreign companies in the same field of activity. “Based on our observations, foreign investment interest in Bulgaria over the past four to five years has mainly focused on two areas, one being the IT sector, and the other being industrial enterprises,” says Evgeni Kanev. The “Maconis” team has been involved in deals in both areas, but he takes particular pride in their recent deal where they served as advisors. This deal involved the acquisition of the large systems integrator Stemo Ltd by the international telecom company A1. “The deal is indicative of the dynamics in the IT sector, as well as in telecommunications and new technologies,” he points out.
In his view, although Bulgaria has a strong technology sector, much of it, unfortunately involves subcontractors, where the added value is not as high. At the same time, there is strong global demand for skilled programmers due to global economy digitization. Kanev believes that Bulgaria is positioning itself as a place with exceptionally skilled professionals. “On a global scale, there is consolidation happening among companies that provide labor resources, especially programmers, which is why many investors come here with that purpose,” he says, adding that in Bulgaria, deals primarily involve the aggregation of labor resources. He also mentions attempts for hostile takeovers. This involves simulating investor interest, accessing the target company’s database, identifyinging the valuable individuals, and then shying away from the acquisition, but trying to attract the individuals on a private basis.
For this reason, there are many intricacies and thus the need of advice from advisorss on how target businesses should protect from such types of unethical takeovers. According to Evgeni Kanev, the entire procedure of a deal involves many stages related to information disclosure, and the complete information should only be revealed subject to a serious commitment of the buyer.
“This is part of our service, not only to find the right side of the deal but also to manage that deal,” he says. The advisory company’s team needs to know at each stage what the intentions of the other party are.
WHEN KANEV STARTED HIS INDEPENDENT DEAL ADVISORY BUSINESS 15 YEARS AGO, there was a boom in foreign investments in Bulgaria, and deals were plentiful. Since then, the combination of geopolitical and economic processes outside Bulgaria and purely local factors have deterred some investors. Before the crisis in 2007-2008, Eastern European countries joined the EU, and foreign investors expected significant growth there. After that crisis, there was a lot of reshuffling, and capital shifted to other markets. Since then, there has been an outflow of investments not only from our country but also from other Eastern European countries.
In the case of Bulgaria, this outflow is more serious due to internal factors such as a shrinking market, a demographic crisis, and a less affluent population with no quick enrichment trends. However, over the last four to five years, digitization has become a crucial factor for growth. Many companies worldwide are accelerating this process, which requires a foundation and talent. For this reason, the Bulgarian market has once again become attractive to foreign technology investors, and almost all significant deals are in this sector.
Kanev believes that despite the expected recession, there will be new merger and acquisition deals. “At the beginning of every crisis, there is a stagnation, but after a few months, the new reality is assessed. Because in these processes, someone loses value, but someone gains value, and the market begins to reshuffle,” he says. He gives the example of how the COVID-19 pandemic accelerated digitization. According to him, in the next few years, there may be deals in several sectors in Bulgaria. One of them is the financial sector, where the rapid development of fintech companies will lead to their acquisition by larger players like banks. Another area where deals can be expected is healthcare and pharmaceuticals. Here, besides consolidation processes, there may be significant interest due to Bulgaria’s “misfortune” of having an aging population. “If the sector normalizes, the potential is enormous because there are many small and large private clinics, and at the same time, there is reshuffling between needs and affordability,” Kanev adds.
At the same time, deals in “traditional” industries are much more challenging because the manufacturing base in Bulgaria, working for the home market, is old, tangible assets are morally worn out and unattractive. If such deals do occur, they usually involve investing for market share, and the acquired company must be in the top three in its industry to be interesting. According to him, Bulgaria should develop champions – if not on a European scale, at least on a regional scale. Bulgarian companies should try to acquire those that he referred to as regional champions in businesses in neighbouring markets or in Europe. He again cites the “Italian” deal as an example, where the Bulgarian company is not so much interested in acquiring production capacity but rather in entering new markets through the acquired company. He adds that if you want to enter the markets of developed countries, you need to have a brand known in those markets. One way is to acquire it, the other is to build it. “Bulgarian companies need to learn to create their own brands, and this is something that can make the economy wealthy,” he believes.
THUS, EVEN THE 58-YEAR-OLD EVGENI KANEV IS SLOWLY BUILDING HIS BRAND. “Maconis” was founded in 2007, but Kanev himself worked for his name in BIG 4 consulting firms before venturing into independent work. He comes from a family of professors, and his calling was initially in scientific work. In the early 1990s, he went to the United States to continue his education but after obtaining MBA he returned to Bulgaria, giving up his PhD studies. “I had a friend at PricewaterhouseCoopers, I went for an internship, but I started working as an auditor by some lucky accident,” Kanev recalls.
However, when he reached the point of becoming a partner in big 4 company, he unexpectedly received an offer to work for the American telecommunications company Tello. “One of the co-founders of that company was John Sculley (former CEO of Apple), and I didn’t hesitate to start working for them,” Kanev recalls. In 2007, when our country became an EU member, he saw the significant opportunities arising from EU membership for private initiative and decided to start his own business. At that time, there were many foreign investors in the country, and the workload was serious from the very beginning. Two years later, however, the economic and financial crisis hit, but it did not significantly affect the operations of Maconis. “Despite the difficulties, we had many clients, we didn’t even need marketing campaigns; referrals were sufficient,” says Evgeni Kanev.
In addition to him, the company has a partner with over 10 years of experience, Andrzej Shafernaker, a British citizen of Polish descent. The Maconis team consists of five people, and they handle the core services, while subcontractors are used for side activities. “Everyone in the company has extensive experience, the team has been built over the years, and we always have quality people for the job, not jobs for people,” Kanev says with a smile. One of his significant motivations is to help develop the entrepreneurial environment in Bulgaria, and he advocates for less political and state interference in the economy. “This is the recipe for attracting more investments; then there will be more quality work for the people here,” he says.
