Of no interest to strategic investors, but great for locals

By Hilary Davies

EI expects its new acquisition, struggling home-improvements retailer, Nomi, to follow a similar route to the three companies recently exited by EI; that is, that it will be sold on the stock exchange to institutional investors. Nomi was bought from one of the world's biggest DIY chains, Kingfisher PLC, in September for zł.45 million.

A local chain built up by a Polish businessman to fill a gap in the market during the nineties, Nomi's small shops have found it hard to compete during Poland's invasion of DIY giants such as Obi, Praktiker and particularly market leader Castorama, over the last few years. And while it provided strategic investor Kingfisher with a foothold in Poland when it acquired the firm in 1998, Nomi has ceased to be of any use to Kingfisher since it bought up control of Castorama in 2002.

Consolidation opportunity for Kingfisher

Selling off Nomi will enable Kingfisher to concentrate on pulling up its Castorama brand in France, where it has recently slipped back against competition by missing new trends in decorative materials, and to consolidate the chain's leading market position in Poland. According to an analyst at Merrill Lynch, London, Castorama has managed to keep ahead of later rivals on the Polish scene, like German Praktiker and Obi, largely because: "It's French."

The analyst who - perhaps not surprisingly - didn't want to be named, later explained that other factors in Castorama's success are that the firm got in early, buying land cheaply, and concentrated on building up local links with managers and suppliers. Castoroma's tardiness in introducing particular decorating products has been a disadvantage in France, yet in Poland, where the market is less mature, this has worked as an advantage.

And what does EI want with struggling Nomi?

"It's a typical example of a company that a local investor can do an awful lot with, while it's of no interest whatsoever to a global investor," says Stanisław Knaflewski, an EI partner involved in the buy-out on September 16.

EI's plan for Nomi, whose smaller shops can't compete next door to the big boys on the outskirts of major cities, is to retarget the chain by moving it out to 'average income' consumers in small towns of no more than 100,000 inhabitants.

"It'll be a typical investment of three to five years," says Knaflewski, after which EI's exit of Nomi will probably go the way of EI's most recent exits. That is, it will be listed on the WSE and sold to long term financial investors.