A brand new management approach and a strengthened capital structure have resulted from the restructuring process involving the transfer of ownership and operational control of Szatmári Konzervgyár Kft. and EKO Konzervipari Kft., according to a panel discussion at the Hiventures-Portfolio Corporate Capital Financing 2021 conference.
Hiventures has acquired a fixed-term stake in the joint venture food processing companies with a turnover of nearly HUF 20 billion, in Szatmári Konzervgyár Kft. and EKO Konzervipari Kft. - informed in April the MFB Group's Hiventures, which supported the concept of Péter Medveczky and Botond Mihályi in their investment.
Gábor Pető, Managing Director of Moore Hungary Real Estate and Capital Markets Consulting said at the outset that the history of the two leading canners is very interesting from a food industry perspective.
Péter Medveczky, owner of the Szatmári Canning Plant Ltd. said that the two main players of the acquisition were Szatmári Konzervgyár Kft. and the Nyíregyháza-based EKO Konzervipari Kft., both of which started their history in the 60s and 70s. Szatmári Konservgyár Kft. is known for its products under the brand name „Rege”, while EKO is best known for its brand name „Nagymama lekvárja”. “When we set out on this journey, we were looking for companies that had a history and a future and could be a stable competitor in the Hungarian market.” Rege is the largest player in the Hungarian pickles market.
The takeover of the company from the elderly owner, the generation change itself was not an easy task, the first transaction did not go smoothly, it took 17 months. “We were the fifth buyer in the 4 years before that who got to the point of wanting to buy the company, and the moment the magic moment came, the seller disappeared.
“It wasn't easy, but we persevered regardless.”
According to Péter Medveczky, the generation change seems at first to be a pleasant Hungarian euphemism for a complete restructuring of the company, which also requires a new management approach. He also pointed out that their goal is to generate returns, which requires the company to grow, which requires change.
It is important to point out that Hiventures joined the transaction at month 5, and the owner was also missing for a few months due to the crown virus epidemic, he pointed out. Gusztáv Láving, SME Investment Director at Hiventures, who believes that such investments in the food industry are important. When Hiventures sits down with the investment partners, the prospective buyers - in this case, Peter and Peter Medveczky - who are asking them to step back and look more broadly at these transactions. After all, in this case, it is not only a question of buying a company, but also of ensuring that the company will continue to operate for another 5-10 years. The companies are located in an economically important region, one in Nyíregyháza and the other in Tyukod, with over 200 employees. Not only are they looking at job retention, but they are also anticipating the liquidity of the companies after the transaction, and the companies have been technically screened, so they have already anticipated future investments.
Dr. Márton Kovács, attorney at law of HBK Partners could not disclose much about the transaction due to legal confidentiality, but noted that it was in the common interest that due diligence be fully implemented. As advisers, he said it was important to understand the context and, if something is found, not only to present it but also to offer a solution, because no one wants to turn back halfway through.
There is an emotional element to all these transactions, because when the previous generation decides to leave, it is important for them that the trust conditions are met. While 17 months may seem like a long time, it is a very difficult decision to make in an operation that has spanned decades and that a manager wants to close. As an advisor, they can successfully represent the investor if they also know the emotional connotations the other side has attached to the deal, he adds.
Richárd Posch, Banking Director of MagNet Hungarian Community Bank Zrt. pointed out that in many cases, the sale of a company involved in a generational change requires the buyer to raise venture capital and a bank loan to buy the target company. Establishing terms and conditions acceptable to all parties involved in the transaction is a complex and time-consuming process, with multiple players involved, which can make it very difficult to keep to the timetable negotiated between seller and buyer.
MagNet Bank and Hiventures informed the audience that they are working on a joint solution and service in a cooperation, in which the loan and equity fundraising negotiations are conducted in parallel, and the bank due diligence of Hiventures-eligible transactions is done through a “green corridor”, They also pre-define their role in the scheme, declare the target industries, define the collateral positions between them, the equity-credit structure, and quasi-standardise the terms and conditions in advance.
This means that the process of raising capital and debt can be significantly shortened, and the synergies from the collaboration can result in more favourable banking terms than an average LBO transaction. MagNet Bank and Hiventures plan to launch the facility in the last quarter of 2021, he added.
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