Double exit action for Mid Europa

Mid Europa Partners has made two exits with a total value of €620m, including the exit of an Estonian railway that was bolstered by rebuilt US locomotives.

Mid Europa Partners, a pan-European private equity firm, has made separate exits, of Hungarian telecoms operator Invitel and of Estonian Railways.

Estonian Railways: €150m sale

In the first sale, Mid Europa and GMT Communications, a communications-focused private equity group, are selling Invitel, a Hungarian telecoms operator, to Hungarian Telephone & Cable for €470 million ($610 million).

Mid Europa and GMT own almost 67 percent of Invitel’s holding company, Matel, and expect to raise $52 million in final equity distribution on the sale’s completion.

Invitel’s senior management will also sell their holdings in the company, enabling Hungarian Telephone & Cable to buy almost 100 percent of the business.

GMT and Mid Europa bought Invitel in May 2003 from Vivendi Telecom International, a telecoms operator, for €325 million. Invitel’s earnings before interest, tax, depreciation and amortisation have increased from €59.1 million in 2002 to €82.4 million in 2005.

The sale is subject to regulatory approval and is expected to close in the first half of 2007.

Also today, a Mid Europa Partners portfolio company, Baltic Rail Services, has sold Estonian Railways, a rail operator, to the Republic of Estonia for €150 million.  The firm has made 2.4 times its original investment and an internal rate of return of 35 percent, according to a statement.  Mid Europa has a minority stake of about 33 percent in Baltic Rail Services, which bought Estonian Railways in 2001 for €64 million.  

Following the completion of the sale and repayment of Baltic Rail Services debt, Mid Europa will receive €54 million.  Mid Europa provided a mezzanine loan of €23 million, which Nordea, a Baltic financial services group, refinanced in 2003.

Bill Morrow, managing director of Mid Europa, said: “Estonian Railways had been a state-owned railway not run very efficiently. We borrowed funds and improved the infrastructure of the railway to improve efficiency. We bought 74 rebuilt US locomotives, which we then adjusted to fit the Estonian lines in Mexico.”

Morrow said Mid Europa had a diverging view of the infrastructure fees the Estonian government placed on open access operators.  He said the firm launched arbitration suits against the government because it did not agree with the method used to calculate the fees. When a new government came into power two years ago, which wanted to buy back the railway, Mid Europa decided not to fight further.

Tamme & Otsmann, a local firm, gave legal advice to Mid Europa. Suprema provided financial advice.