After a long drought, the first big acquisition of a Bulgarian company this year has happened. The biggest water bottling company in Bulgaria, Devin, has a new owner, Advent International, which signed in mid-September a deal to buy the majority stake, two independent sources told Kapital.

The private equity fund, which estimated the bottling company to be worth 40 million euro, will buy 82 per cent in Devin, including 75.3 per cent from investment fund Soravia and the rest from Devin management. Advent International declined to comment, neither could the seller be contacted for comment.

The closing of the deal has been expected for several months, ever since Soravia said it was looking for a buyer for its stake. The main reason for the sale was the financial crisis and the fact that Soravia’s main business is real estate, the sector that has been worst affected by the global crisis. The expectations were fuelled also by the fact that for some time, there has been no deal of this size in Bulgaria.

Initial interest in Devin was very high, all of it from financial investors. Soravia shortlisted three of them, inviting Advent, Balkan Accession Fund and NBGI to start negotiations. Clearly, Advent made the highest bid, since it was chosen as the exclusive buyer. During the due diligence of the Bulgarian firm, there were no surprises and the talks were concluded quickly, a source familiar with the deal said.

The deal is subject to approval by Bulgaria’s competition regulator, which is unlikely to cause any problems, since Advent has no other investments in that sector in Bulgaria. The regulator is expected to take at least a month before making a ruling and only then can the shares be transferred. It is also possible that the buyer will wait until the Cabinet decides to expand the water bottling company’s concession, which is expected by October 23. Once the share transfer goes through, the new owner will have to make a buy-out offer to minority shareholders.

Neither the buyer, nor the seller are new to the Bulgarian market. Soravia bought Devin in 2006 and has also invested more than 200 million euro in real estate in Bulgaria. Its Megapark project on Sofia’s Tsarigradsko Chaussee Boulevard is slated for completion later this year.

Advent is best known as the company that bought former state fixed-line monopoly Bulgarian Telecommunications Company, which it quickly sold on for a profit. In 2007, the fund bought ceramic tiles producer KAI Group.

Devin is the market leader among mineral water retailers with 30 per cent market share. Over the past two years, it expanded its portfolio with Red Bull energy drinks and Granini juices, among others. The company was listed on the stock market in 2007.

The cost
Advent’s price is about 40 per cent above Devin’s traded stock price. The price paid by Advent for Soravia’s stake valued the company at 40 million euro or 78 million leva. At the same time, the new owners paid a premium of 40 per cent over the company’s revenue. For the first half of 2009, Devin reported a 10 per cent increase in revenue to 33.5 million leva over the same period of 2008. At this rate and at a market capitalisation of 53 million leva, the stock’s price-to-earnings ratio is 0.8, marginally lower than the 0.85 average ratio for bottling companies.

The price is also close to eight-times multiple of Devin’s earnings before interest, tax, depreciation and amortisation, mooted when Soravia put its stake on the market. The market average now is a six-times multiple, but the fact that Advent is buying a majority stake justifies the extra premium paid by the buyer. However, the potential deal pushed Devin’s shares up when Soravia officially confirmed that it was looking to exit its investment. The announcement at the end of May added 15 per cent to Devin’s stock price, to three leva, the price at which the shares are being traded now.

Kapital weekly, issue 37