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Interview of Tim Demchenko, Global Head of Private Equity and Special Situations at VTB Capital, for EMEA Finance

15 January 2013

Deal news round-up

Part of the plan

A new investment in Russia’s biggest outdoor-advertising company has given its existing private-equity backers unrivalled industry expertise.

In an episode of Mad Men, a popular US TV series about advertising executives in the 1960s, protagonist Don Draper tells a client that advertising is based on happiness, “a billboard on the side of a road that screams with reassurance that whatever you’re doing is OK”. Several dealmakers have, in their latest transaction, found just that.

In October?JCDecaux, the world’s biggest outdoor-advertising group, agreed to buy a 25% stake in?Russ Outdoor, the largest such company in Russia. The deal comes six years after?JCDecaux?entered Russia with an investment in BigBoard and four years after a failed attempt to buy?Russ Outdoor?fr om then-owner News Corporation.

Equally happy with the deal – the price-tag for which hasn’t been disclosed – are?JCDecaux’s new co-shareholders in?Russ Outdoor. In 2011 News Corporation sold its 79% stake in the business to a consortium led by the private-equity arm of Russian investment bank?VTB Capital. In selling a chunk of the business to the world’s leading name in outdoor advertising, the members of the consortium now hope to have brought unrivalled industry insight to bear on the?Russ Outdoor?strategy.

Give me shelter

The 2011 deal came as News Corporation exited all of its outdoor advertising businesses around the world.Tim Demchenko,?VTB Capital’s global head of private equity and special situations, recalls the attraction of backing Russia’s leading billboard business –?Russ Outdoor?has US$300mn in revenues and advertising sites in 70 cities across the country.

“We saw something that was fundamentally strong and operating in a growing market but was somewhat neglected and partially mismanaged,”?Demchenko?says, speaking with EMEA Finance shortly after the new deal with?JCDecaux?was announced. “That seemed to us a good opportunity for a private equity player like ourselves to restructure and add some value and dynamic to the business.”

During the past year,?VTB Capital?and its fellow investors have introduced a new incentive plan to the top management team and other senior levels within the company. Their broader strategy has been to repositionRuss Outdoor?fr om a simple billboard-advertising firm to one that, like?JCDecaux, focuses on opportunities around public infrastructure, municipal buildings and what such companies call street furniture – bus shelters and the like, maintained through the money from the advertising they carry.

“That is a much more sophisticated business,”?Demchenko?says. “It’s more difficult to originate that business and set up commission models that benefit all parties, and more difficult to manage. It requires a high level of research and development, and technology. But ultimately, that differentiates you from a firm that just puts a stick in the ground and puts a billboard on it.”

Watch this space

These goals meant that?Demchenko?and colleagues always intended to bring a strategic investor into?Russ Outdoor?to provide some expertise alongside their own financial clout. “It was not just a lucky coincidence that we managed to do this in less than a year – it was a strategic step to have a partner with expertise, knowledge and management skill,”?Demchenko?says. “It was an intentional part of the plan and we started that work almost the day after we closed the original transaction, having discussions with various partners.”

JCDecaux’s earlier attempt to buy?Russ Outdoor?meant that the company remained in the frame as a potential backer. Furthermore, its track record in the business areas?Russ Outdoor?plans to move into – street furniture generated almost half of the company’s 2011 revenues, and it has 426,184 advertising panels in 46 countries – made it an attractive partner to the company’s private-equity investors.

Now that the deal has been agreed, the hard work begins.

“It’s not a quick turnaround plan,”?Demchenko?says. “It’s a strategic repositioning of the company that we hope to carry out over the next two to three years. It’s early days, but we’re already on the way with a couple of opportunities with regional and Moscow municipalities.”

If the partnership between?JCDecaux,?VTB Capital?and?Russ Outdoor’s other investors proves fruitful,Demchenko?isn’t adverse to the idea of teaming up with other corporate investors in the future. “We’re humble enough to accept and appreciate that we have a lim ited industrial knowledge and competence compared to someone like?JCDecaux, and so are bringing them on board in this investment,” he says. “And there are other examples in other companies and industries wh ere maybe the same value-add can be brought in.”

With other?VTB-owned businesses including Zapadnaya Mining and software house Luxoft, there could easily be deals that global companies would like to strike –?JCDecaux?may just have shown them how to do it.

http://www.emeafinance.com/emea-finance-magazine/2013/January/Deal-news-round-up_1820.shtml

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