Telesis and Capital Z Emerge In Europe

Answering the call of Europe’s converging markets, Telesis Investment Bank and the Converging Europe Fund, sponsored by Capital Z Partners, have teamed up to form a joint investment vehicle intended to gain them entree into emerging economies throughout the Continent.

Co-managed by Telesis in Greece and Capital Z’s European Fusion Partners affiliate throughout Europe, the joint venture will target telecommunications, financial services, media, entertainment, health care and technology-related plays in the Czech Republic, Greece, Hungary and Poland.

“One reason we partnered with Telesis is because we thought it was very important to have a tangible, on-the-ground presence in Greece, and they have a strong franchise there,” said Elizabeth Danes, a principal with Capital Z. “Greece is an integral component of our investment focus because it’s already a member of the European Union and its economy has exhibited a strong growth curve.”

Although they aren’t yet part of the EU, Danes anticipates that the Eastern European nations will experience the same kind of economic expansion.

At issue, however, are the poor corporate governance standards practiced by companies in that region. According to a recent survey of 25 countries conducted by CLSA and Salomon Smith Barney, the Czech Republic and Poland ranked among the bottom 10 emerging markets when it comes to corporate governance scores, achieving 2.7 and 3.0, respectively, on a scale of 1 to 10.

“It’s true that the corporate governance isn’t what we’re used to seeing in the U.S., but it certainly is improving as companies and management teams in Eastern Europe become more familiar with the way it works,” Danes noted. “It’s an issue we consider and try to address when we look at these transactions.”

Under the strategy guiding those transactions, the joint venture will take significant minority stakes in the companies it invests in. Danes declined to reveal the exact nature of the holdings, saying only that they would be much less than 50%.

Based in Athens, the Telesis vehicle is looking to raise $50 million from local backers in Greece, and will co-invest with the Converging Europe Fund.

Telesis’ average investment will likely be about $5 million, while the Converging Europe Fund plans to make commitments in the $10 million to $30 million range. Slated to launch in the second quarter of 2001, that fund currently holds $75 million in commitments from Capital Z, and has a target capitalization of $300 million.