Greek group eyes €5bn for SE Europe

Greek investment group Marfin wants to raise over €5 billion via a rights issue for investments in South East Europe – and then put the entire sum to work within just 12 months.

The little-known investment arm of Marfin, a Greek bank, is attempting to raise over €5 billion ($6.7 billion) for private equity investments in South-East Europe.

Marfin Investment Group plans to raise up to €5.19 billion via a rights issue to existing shareholders, with any unsubscribed shares sold through a private placement conducted by Deutsche Bank and Merrill Lynch. Trading is expected to begin in mid-July.

If it gets anywhere near this figure, MIG would have by far the biggest pool of capital targeting investments in the region. By way of comparison, the sum total of all funds raised for investments in Central and Eastern Europe in 2006 was €2.3bn, according to data provider Private Equity Intelligence.

Marfin plans to put the capital to work on private equity style investments in Greece, Turkey, Hungary and the surrounding countries as far north as Russia. It will focus mainly on the healthcare, leisure, utilities and real estate sectors, and may also invest in privatisations and infrastructure projects, the group said. It is targeting a net internal rate of return, after fees and costs, of 25 percent.

MIG also said that in an attempt to avoid the “cash drag” effect, it would put 80 percent of the money to work within six months, and the full amount within a year. Given the group expects to use gearing of up to 200 per cent of funds, this would mean €15 billion of deals in just 12 months. Chief executive Dennis Malamatinas said the group would target three large deals, about ten medium-sized transactions and several smaller deals. It will also invest in “short-term liquid financial investments”, to keep cash off its books.

Malamatinas himself has no background in deal-making, though he has extensive operational management experience. A former chief executive of Burger King Corporation, he is a partner at buyout firm Mid Ocean Partners and sits on the board of portfolio companies of Swedish group EQT and US firm General Atlantic. “I’m not a deal maker but I’ve run companies around the world and I think I know how to improve operating processes,” he said.

The management team will receive no carried interest. Instead they will be incentivised entirely through stock options, which can only be exercised when the share price hits €10. Since the issue price is €6.70 per share, that means MIG’s stock must appreciate by about 50 percent before the team makes any money.

MIG grew out of Marfin, a Greek investment group that has largely operated in the banking sector, consolidating three different institutions to create Marfin Popular Bank – now one of the biggest retail banking operations in Greece. MIG sold its remaining banking assets to MPB earlier this month, freeing it up to broaden its investment remit.

Malamatinas said MIG’s vision was to be Southern Europe’s largest investment group. He added that it would compete with the likes of Advent International, Mid Europa and Enterprise Investors, all of whom have established track records in the region.

Rivals reacted with surprise to the news, with several admitting they had never heard of the group.