Getting down to work

Pawel Gierynski and Stephen Richmond of Abris Capital Partners talk to Real Deals about capitalising on opportunity in Central Europe with market knowledge, technology and ESG

Abris Capital Partners had one of its best years in 2023. The firm – now certified as a B Corp – saw two portfolio companies through to successful exits, having provided capital and strategic and operational support, while simultaneously using its signature focus on ESG to add further value. Managing partner Pawel Gierynski, and partner and chief financial officer Stephen Richmond, discuss the year with Real Deals.

How did Central Europe perform as a region in 2023? Pawel Gierynski: On a relative basis, Central Europe performed very well last year and I believe that, for the foreseeable future, it will continue to grow faster than the rest of Europe.

Pawel Gierynski:
On a relative basis, Central Europe performed very well last year and I believe that, for the foreseeable future, it will continue to grow faster than the rest of Europe.
First, there is the ongoing process of convergence with the rest of the EU. Second, the massive movement of EU manufacturing here, initially driven by cheaper labour costs but now by the availability of a well-educated, well-trained workforce of all levels, combined with strong productivity. Third, the reversal of globalisation. Today, businesses are more concerned about supply chain security than cost, which means European companies are keeping manufacturing close to home.
Finally, there is the war in Ukraine. When the war began in 2022, many business decisions in the region were delayed. The continuation of the war in 2023 was a tragedy from a humanitarian perspective, but the direct impact on Central Europe was lower than expected. The prevailing logic has been that investments and other business steps that would otherwise have been completed should now go forward, because the war will not change anything.

Stephen Richmond: There were some challenges in 2023, including the significantly increased cost of debt and tightening covenants. But Poland, for example, still saw more M&A transactions in Q1-3 than in the same periods in 2022 and 2021. Trends we observed were a noticeable shift away from mega- transactions and towards the mid- cap space, and a large number of transactions being put on hold due to mismatches in valuations between buyer and seller.

How would you summarise Abris’s performance in 2023? 

Gierynski: Overall, 2023 was one of the best years that we have had. We had two very good exits: Graal, a leading Polish canned fish producer, at the beginning of the year; and Velvet Care, Poland’s leading tissue manufacturer in December. We also made several acquisitions and bolt-ons, and saw very good performance in terms of growth across the whole portfolio.

Richmond: Thanks to our disciplined approach to value creation, both companies we exited performed extremely well during our investment, with Velvet Care growing sales by 2.5x and Ebitda by more than 5.5x.

Can you talk more about one of those successful exits?

Gierynski: The exit of Velvet Care symbolises our approach to making investments. It was a specialised deal, requiring a deep understanding of an industry and strategy, and was not a process where we could just rely on advisers.
About €130m was invested in capital expenditure during this investment, modernising the factory’s processes and expanding capacity to meet local and international sales growth. We aimed to increase productivity by using the most sophisticated technology and machinery, and by enabling vertical integration – that is, from making paper tissue to finishing a final sellable product. Overall, the changes required a massive redesign process, including taking into account new sustainability trends and how the industry will evolve in the coming years.
It is also important to mention that we committed to making the factory Co2 neutral. We did this because carbon neutrality is one of the pillars of our value creation path. In addition, potential buyers signalled that without evidence of a clear route to carbon neutrality, they would pull out because a Co2 challenge would jeopardise future value.

How has ESG been a value driver in general for Abris in 2023?

Gierynski: ESG is hugely important in driving value in our investments. For these reasons, we have developed a proprietary software platform for managing ESG integration through 500 different measures that help us to assess our portfolio companies. This is important because, at exit, our portfolio companies will be compared to best practice in ESG in their industry.
The bigger the gap between our company and this standard, the bigger the discount we will have to offer to potential investors. If, as we hope, there is no gap, we will not need to offer a discount.

How significant for Abris is its achievement of B Corp status this year?

Gierynski: Greenwashing is a common problem across various markets and private equity is no different. Therefore, we wanted the most reputable and recognised confirmation of our ESG efforts, hence our decision to apply for B Corp certification. I am extremely proud of receiving this certification, following two years of hard work for our team.

How has the use of technology helped Abris create value in 2023?

Gierynski: I prefer data to anecdotes, so we try to use data as much as possible. At Abris, we centralised the reporting system that connects data from the portfolio companies to our central database and generates analytics and management reports. These reports are critical for investment evaluation and decision-making. Similarly, we strongly encourage all our portfolio companies to digitalise their businesses and enhance their operations with modern tools.

Is there anything else that you would like to mention?

Richmond: We expect to see a greater focus across the market on more cautious deal-sourcing, operational improvement and organic growth. Some have described this as “making returns the hard way” but it is how we have always worked. As this has been a key element of our value proposition up until now, we are well placed to continue delivering strong results for investors going forwards.