Sofia-based Eurohold Bulgaria is a leading independent business group, operating in the CEE/SEE/CIS region and the largest publicly-listed holding company by revenues in the country. Eurohold’s subsidiaries operate in the areas of insurance, leasing, car sales, asset management and investment services in ten European countries. The company is listed on the stock exchanges in Sofia and Warsaw. On June 20, 2019, Eurohold signed a deal to acquire the Bulgarian business of Czech energy group CEZ for for 335 million euro. The transaction is subject to approval from Bulgaria’s competition and energy regulator.
Vasil Stefanov, Head of M&A, Eurohold Bulgaria
Regarding the CEZ deal, how will you build the capacity to handle the electricity distribution and supply business and compensate for the lack of management experience in power utilities?
For the last 50-70 years leading corporations worldwide have transformed and continue to transform their business models in order to grow and
strengthen their market positions. The key to their successful transformation is to have built the right expert and management teams. And Eurohold has done it too. Firstly, we made sure that the current CEZ Bulgaria management stays and sees to it that operations and transition run smoothly. Secondly, we set up an advisory board of leading energy experts that is supporting the acquisition process and will oversee the integration of CEZ Bulgaria’s business into the structure of Eurohold after the completion of the transaction.
For the time being, the board consists of three experts with solid international experience in the energy business and the distribon of electricity – Garry Levesley, the former director for Europe and Central Asia of London-listed ContourGlobal; Dan Catalin Stancu, the former group CEO and chairman of the board of the three power distribution subsidiaries of Romania-based Energetica Electrica, and Georgi Mikov, previously CEO of Bulgarian state-owned National Electricity Company. The energy board will also elaborate a strategy for the development of the energy company we will set up within Eurohold. This new energy subholding company will consolidate the operations of the CEZ subsidiaries in Bulgaria.
Let us not forget that our group has gained solid experience in acquiring, developing and growing businesses, particularly heavily regulated businesses such as insurance. With more than 16 acquisitions behind our back, we have a successful M&A track record and we have proved that we are able to identify promising transactions, negotiate reasonable prices and terms and generate superior value. Furthermore, the rapid growth of our group over the last five or six years shows that we are able to develop and grow the companies we have bought. We believe that the deal for the CEZ assets in Bulgaria will suit perfectly our business model and goals.
Does this deal threaten Eurohold’s financial stability?
Electricity distribution and supply is a heavily regulated business but it generates stable cash flows. So if this deal brings in stable cash flows and financial predictability, how can it threaten our financial stability? Just the reverse. The deal could impact positively our group’s credit profile, as Fitch Ratings has noted. Also, it would be neutral to Eurohold’s insurance-related financial leverage ratio and capitalisation.
EIG, our insurance group, maintains high capital buffer and liquid position. Its SCR ratio is 180%, well above the regulatory requirement of 100%, and we plan to keep this level of coverage in the next years.
Do you plan other acquisitions in the energy and insurance sectors in SEE?
The successful acquisition of CEZ’s business in Bulgaria gives us a solid foundation for growth in the power distribution business in CEE/SEE. We plan to set up an energy group following the EIG model. We are also monitoring closely all opportunities in the region, including the Czech group’s plans to sell its assets in other SEE countries.
Eurohold is considering divesting its operations in the automotive and car leasing sectors with the aim to increase its focus on the segments that would generate the highest value – insurance, asset management and energy.
EIG, our insurance sub-holding company, will continue to explore new expansion opportunities in CEE and SEE. The energy and insurance businesses can complement each other very well and generate intragroup synergies.