European Privatization and Investment Corp. (EPIC) and Shrem Fudim Kelner (SFK) have jointly launched a fund designed to raise $150 million to $200 million for private equity investment in Eastern Europe. Chemicals manufacturing, pharmaceuticals and telecommunications are industries that Israeli venture capitalists SFK and Vienna-based EPIC are particularly interested in.
“The main reason we are teaming up with EPIC is because our country is small, and its economy is confined,” said Ishay Erel, chief executive of projects finance with SFK. “We’re looking for growth opportunities and want to take advantage of the geographical proximity of Eastern Europe. It is a three- to four-hour flight – in some cases, two hours – from Israel.”
The Israeli venture capital firm believes Israel is a good match for investing in Eastern Europe because Israel has “many immigrants originating from that region of the world, and it has resulted in a network of friends in power.”
He added, “It was not so long ago that Israel was a developing country, with inflation and lack of foreign capital. We will be able to relate to the challenges Eastern Europe faces.”
Peter Goldscheider, founder and managing partner of EPIC, said he believes Poland and Hungary are going to be the “next Spain and Portugal.” The Iberian countries, once accepted into the European Union, continued to impress investors with their positive economic indicators.
“Investing in Eastern Europe at this time allows for more competitive prices. Once membership to the European Union is granted, there will be a shifting of capital and much more competition,” Erel said. EPIC and SFK feel they are at an advantage right now because most VCs focus their attention on Western Europe.
The fund is targeting traditional industrial companies because the region is not yet quite prepared for an influx of so-called “high tech” investments.
The $150 million to $200 million raised will focus on medium-sized companies. “We need seven to eight investments to really focus on this,” Goldscheider said. “I have been doing some pre-marketing in the U.S. Americans like the pre-market accession game.”
The fund will be led by 14-office EPIC, a firm that recognized the region’s potential and acted on it as soon as the Iron Curtain fell. “The fund will invest side-by-side with industrial investors,” Goldscheider said. “We will co-invest in situations we know well. We feel comfortable because we are seen as the local grapevine system.”
SFK feels very privileged to be partnering with EPIC, Erel said. “They have control stakes through massive privatization all throughout Eastern Europe. EPIC is the key player in analyzing opportunities with their office network staffed by local people.”
Ma’ariv, an Israeli newspaper, reported that $30 million to $40 million of the fund will be raised by Israeli investors. “We hope to add some Israeli spirit to [the fund with EPIC],” Erel said.
SFK has raised venture capital for tech companies, most of which came from foreign sources. “We have an international affinity,” said Erel. It is not the first time SFK invested in Eastern Europe. The firm is working with another Israeli group in a real estate venture. – L.M.