Tomasz Czechowicz, MCI Capital’s founder and managing partner talks to Real Deals on what makes the firm’s investment strategy unique and what’s attractive in CEE right now. 

What is MCI’s investment strategy and what makes the firm unique from other managers in the region?

MCI is the only digital and technology-dedicated buyout investor in CEE and we have managed to build one of the top three largest mid market private equity funds in our region. 

At MCI, 80 per cent of our AUM is self-financed and so we have a large proportion of evergreen capital - we don’t need to go to the capital market for our fundraising. And our fund size is growing at pace. 22 years ago, we started with €10m in capital and now we have around €500m and we are expecting to be at €1bn in the next four to five years. As a result of the evergreen structure of our funds, we are looking to deploy around €500m-€600m in the next four years. 

Our investment strategy is focused on digital businesses with great teams where we could invest between €25-€100m equity in expansion, buyouts and leveraged buyouts. Our strategy is based on three pillars: digital disruption, digital infrastructure and digital transformation, and main sectors include: Software as a Service, ecommerce and fintech businesses, but also (digital) business services and digital infrastructure.

In terms of performance, we achieved 29 per cent gross IRR and 12 full exits in our buyout strategy in the last 10 years. In total within 22 years that we’ve been operating, we have managed over 100 investments and more than 80 exits across Europe and CEE from our VC and Buyout  portfolios. Our average exit volume per year is around €100m-€200m.

More generally, how does MCI add value to the businesses that it invests in?

Our understanding of digital entrepreneurs and managers, our network, our history of digital and tech experience and our current portfolio have created a unique value proposition for improving digital businesses. Those components allow us to genuinely transform the companies, and so we see ourselves as a transformation fund. 

To add value to our portfolio companies, we have three core value pillars. One is strengthening the team with experts and non-executive advisors and mentors. Second involves improving the quality of digital operations within the asset, such as scaling logistics, improving capital facilities, improving the quality of management, the usability of ecommerce sites, etc. Third is cross-border expansion, usually through M&As. We do this via assisting the businesses to identify and acquire add-on companies and assist with managing their post-acquisition merger strategy. Historically, we have managed over 100 add-ons to our portfolio companies across different markets in Europe. 

Furthermore, we have a track record of exiting to high profile European or Global strategic buyers such as PayPal, Naspers, Nets and Bauer. We also have experience in international IPOs and experience selling to high profile European and Global private equity firms.  

What makes CEE an attractive market for MCI? 

We feel that the CEE is the most attractive for digital private equity investments across Europe and one of the most attractive in the world. This is due to its strong GDP and overall economic growth and also future opportunities for cross-border expansion, as CEE is very fragmented and so there are opportunities for platform businesses to address those. The majority of our current portfolio companies have such an opportunity - building a regional champion on the platform of a national champion in their  area of expertise. 

In addition, we also think that there are opportunities to build pan-European champions from CEE players as they become more sophisticated with strong IT talent that is abundant in the region. 

This is also evident when you look at the astounding number of unicorns that have been set up in CEE, half of which are regional and half are global businesses. Currently, 10 unicorns come from CEE and there are probably another 10 on the way, and they should get there in the couple of years.

How did the portfolio manage the impact of Covid?

We observed acceleration in the majority of our portfolio due to a shift to digital like IAI (IdoSell), the CEE leading SaaS Ecommerce platform that currently services GMV of 3bln$, 7000 clients and grows at a 60% rate. 

Our Ecommerce companies like Morele or Pigu are another example, where we not only saw 30-60% GMV growth throughout last 12 months (and even more sizable growth in profits), but we also observed change in customer behaviours towards online, and activity from new online customers that will have fantastic effects in the next years. It is unbelievable that as much as 15 million new customers did online shopping last year in the CEE region.

We have some adaptations of business models in the portfolio that, as done in the beginning of Covid allowed those companies to go through that time safely. 

The most negatively influenced sector was online travel (Travelata), for obvious reasons, but also there our disciplined teams have managed to minimize negative impact and we are looking at mid term positively, with customers moving online from traditional channels, which should also open some interesting consolidation potential. 

What deals did MCI complete in 2020?

Covid had a very positive impact on the value of our portfolio companies. We have signed or completed 14 exits (doubling the number of exits from 2019). The largest exit transactions were the sale of ATM (the largest data center in CEE) to Goldman Sachs funds, and the sale of Netrisk (the largest online insurance company in CEE) to TA Associates, the exit of Frisco (the largest online grocery in Poland) to Eurocash Group and the IPO of Answear.com on the Warsaw Stock Exchange. At the end of March 2021, we signed an agreement to sell our shares in Pigu, the largest e-commerce platform in the Baltic countries to Mid Europa Partners. 

On top of that we saw significant activity in add-on M&A - nine of our 14 portfolio companies have completed, agreed or are in advance stages of acquisitions. 

What are MCI’s investment plans/goals for the rest of the year? 

We had a huge year in terms of exits in 2020, that will be continued in 2021; delivering at least one high profile exit per quarter. We will also continue to support our portfolio companies with actively seeking add-ons and further M&A to grow each business by high double-digit numbers. 

Thanks to record exits, we have approximately PLN 1 billion funds for new investments in 2021. We will be very active in identifying new deals and investment opportunities including public to privates, digital buyouts, venture capital recaps and strategic carve outs. We will look to complete at least two high profile investments per year.