AMC brings mezzanine financing to Poland

By Timothy Sifert

Accession Mezzanine Capital (AMC), the first mezzanine fund dedicated to central Europe, is homing in on investments in Polish media and telecoms as companies in those sectors are consolidating, making it an ideal target for mezzanine-style investment.

Fund investors see the telecom and media sectors as good sources of revenue which provide stable cash streams at a time when those companies are also heading toward mergers and acquisitions, a choice environment for mezzanine financing, said Przemek Szczepański, Warsaw-based investment director at the fund. He would not elaborate on which companies AMC is interested in.

Investors in mezzanine funds typically employ a panoply of investment products - subordinated debt, convertibles and warrants, for example - to fund management or to leverage buyouts and expansion, often via mergers or acquisitions. And, as is the case with AMC, their fund structures often take the traditional shape of a private equity partnership.

The fund is called "mezzanine" because it uses subordinated debt. Debt holders are second in line, or subordinated, to senior debt holders in terms of claims on the assets of the company in which they invest. But subordinated debt has priority over equity investors, so it fits in the middle in terms of risk and also in terms of returns.

It's likely that the bulk of AMC's €115-million (zł. 513-million) fund, which recently reached its final closing, will be focused on Poland, primarily because of the country's large population when compared to other central European countries like Hungary, the Czech Republic, Slovakia and Slovenia, where AMC also investing, said Szczepański. The firm has completed one investment, but it would like to invest at a faster clip of three companies a year, he pointed out. Total investment size will be €515 million (zł. 2.3 billion).

AMC is sponsored by Mezzanine Management, a mezzanine fund in western Europe that has some $1 billion (zł. 3.98 billion) invested in 60 companies. AMC recently decided to open its doors to Poland and the rest of central Europe because it saw the local economies - and financial communities - developing in a similar manner to western Europe in the 1980s, when Mezzanine Management was founded, Szczepański said. He explained that, as in western economies, investors and executives in Poland are becoming more knowledgeable of the various investment vehicles available. And since mezzanine financing offers companies an alternative to straight equity or debt deals, interest is mounting, he claims.

"Specifically, Poland is an attractive market because there is a lot of private equity capital available," he explained. AMC's strategy is to sidle up to deals with local and international private equity funds, such as Advent International, with which it recently completed a deal in Hungary. At present, he said, AMC is in talks with private equity investors about including a component of mezzanine financing in their future deals.

Szczepański also noted that, besides companies and executive private equity, investors in Poland need to become educated about the virtues of mezzanine capital. In doing so, AMC would like to see central Europe mirror western Europe, where most private equity deals include some mezzanine financing. "Now it's (becoming more) similar to western Europe," he said.

He also added that in the near future he expects AMC to experience more competition.