DrKC buys into Polish candy maker as first step to acquiring more brands

Dresdner Kleinwort Capital (DrKC) announced last week it would become a strategic investor in Mieszko, a publicly listed Polish confectioner. DrKC, a private equity group, will acquire $2.5 million in new shares and co-control Mieszko, currently run by the Gajdziński family. DrKC declined to say how large a stake it would eventually hold. To date, the Gajdzińskis have controlled about 49% of Mieszko's shares (including a 25.93% stake held by Tomasz Gajdziński, the company's CEO) but with the new share issue the Gajdzińskis and DrKC will hold more than 51% of the candy maker. "But after we get approval from the Securities and Exchange Commission (KPWiG) we'll make a general offer on the market and we expect to buy more shares, and I understand that some members of the Gajdziński family are still willing to sell," said Roger de Bazelaire, regional director for Central and Eastern Europe at DrKC. "Besides, we're willing to invest in tranches, so the $2.5 million purchase of new shares is the minimum we can spend. We agreed with the family to invest more if required. We're ready to go to $10 million-$15 million if necessary."

DrKC typically invests $3 million-$25 million for a minimum return of 35-40%. For its part, Mieszko has other financial investors, such as Deutsche Bank and OFE Zurich, a pension fund, that combined hold some 30% of the company's shares. "Financial investors are quite happy being in this company, but if they're willing to sell we will be happy to buy, but we really don't need it," de Bazelaire said. Tomasz Gajdziński said DrKC isn't planning to make any changes to the company's management board. "They bought Mieszko because it's a well-run company so they won't change anything and they won't place their representative on the board," he said. "We'll work together. It was a choice between doing something on your own though on a small scale or expanding with the help of an investor."

According to de Bazelaire, Mieszko was one of the few Polish confectioners that managed to recover quickly from the 1998 Russian crisis, when exports to the Eastern market dried up. "And it's been one of the fastest-growing Polish companies in the sector over the last three years," he said. In 2001, Mieszko's turnover reached zł. 132 million ($31.4 million) with a net profit of zł. 5.2 million ($1.2 million), a 30% increase annually over the last three years. "What we need is to repay some debt and we need to put more emphasis on promotion and development of brands," de Bazelaire said. Mieszko has 3% of the candy market, which is dominated by international confectioners such as Switzerland's Nestlé and U.S.-based Mars. "So the goal for Mieszko is to achieve 10% of the market to become visible," de Bazelaire said. But DrKC also sees Mieszko as a platform for acquiring comparable brands in Poland and in other Central European countries. "We'll be looking at market consolidation of Polish independent confectioners," he said. "There are at least 10 Polish companies that have zł. 50 million-zł. 150 million ($11.9 million-$35.7 million) in sales and account for 20-30% of the market. Obviously, potential acquisitions will be done through Mieszko."