Two private equity funds managed by Small Enterprise Assistance Funds (SEAF) together have sold their combined 36 per cent stake in the largest independent supermarket chain in Romania, Artima Retail Investment. The SEAF Trans-Balkan Romania Fund (TBRF) and the SEAF Central and Eastern European Growth Fund (GF), along with Artima’s Romanian founder, Florentin Banu, and another international investor have sold the company for €17 million to a large financial investor active in the region, Polish Enterprise Fund V. The combined return on this sale for the two SEAF funds exceeds the pooled IRR of the top quartile of European venture capital funds (56% IRR for TBRF and 57% for GF). During the period of SEAF’s investment, the company grew spectacularly, with revenues growing to € 32 million annually and employment increasing from fewer than 300 in 2001 to 770 this year.
Artima’s core business strategy was to develop a chain of top located supermarkets in second tier cities in Transylvania and Banat (northwestern Romania) at a time when major international players were concentrating only on Bucharest and several other major cities. This strategy enabled the company to get a significant first mover advantage and to reach critical mass before any major competitor entered its target market.
With initial share capital of approximately € 2 million invested by its founders, the company soon reached a critical point in its development when it needed more capital for expansion but could not yet access traditional funding sources. The investment by TBRF came at that crucial point, and Artima’s expansion was able to continue. TBRF invested in two rounds (September 2002 and March 2003), for a total investment of € 1.55 million. In the second round of financing, the Growth Fund joined TBRF, invested € 1.4 million. A year later, an additional capital increase was completed with the German institution, Deutsche Investitions-und Entwicklungsgesellschaft mbH (DEG).
As a result of this investment, Artima was able to develop as an integrated chain of 14 medium-size downtown supermarkets in 13 cities, each with between 600 and 1800 square meters in sales area. The stores focus on quality and product diversity at prices below those of boutiques, kiosks or other traditional trade outlets in Romania. Each store has a fresh products line as one of the major traffic drivers. The quality of products and service, product diversity, top quality new equipment and fixtures made Artima stores unique in the environments where they operated.
Artima’s growth, far beyond the market’s average, was a direct result of several factors: Rapid build-out of its network of supermarkets in key second-tier cities; Growth in the consumer goods market as Romania progressed economically; and Changing Romanian shopping behavior in favor of modern commerce.
Undoubtedly, a key element of success was Artima’s highly successful and motivated founder, Banu, whose business reputation was well-established. He had previously created and sold a successful wafer brand and his sweets company to the Nestle Group in 2000. Building on that success, he combined his knowledge of the Romanian market with the growing retail phenomenon to direct part of his capital into building Artima’s modern supermarket chain, which he launched in spring 2001.
SEAF also played a major role in Artima’s success by identifying its potential, investing in the company when it was in a difficult financial position, and giving it the financial boost it needed at a critical juncture. TBRF then initiated the consortium of other investors, including the Growth Fund, that was able to provide the sequential financing necessary to fuel the company’s expansion at each key point57 in its development. And, less than three years later, SEAF was equally instrumental in helping structure a successful exit from the company.
SEAF sponsors the establishment and oversees the management of equity funds investing in small and medium businesses worldwide. TBRF and Growth Fund are two of SEAF’s funds. SEAF is headquartered in Washington DC, with offices in the countries in which its funds operate. It has sponsored 18 private equity funds since inception totaling approximately $175 million of capital commitments and investing in 25 countries in Central and Eastern Europe, Asia, Central Asia, and Latin America. As of December 31, 2004, SEAF’s total invested capital exceeded $90 million through approximately 230 completed small business investments.