FUNDS GO TO ADVERTISING: Baring Vostok and EBRD bought Gallery Group shares
Gallery Group, the second largest operator of the outdoor advertising market in Russia, now has new shareholders. They are the EBRD which has recently financed the advertising company and an investment fund advised by Baring Vostok Capital Partners (BVCP). Experts and market participants believe that thanks to the new shareholders Gallery Group will be able to considerably strengthen its market positions, primarily through acquisitions of other companies. BVCP is a company managing private equity funds in Russia and the CIS. Its total capital is over $800 million. Since 1994, Baring Vostok's funds has invested $336 million in 40 projects. Gallery Group was founded in 1994 and now operates in 27 Russian towns. According to the estimates of ESPAR-Analyst marketing agency, the company’s turnover in 2004 was $25 million. The remaining principal shareholders of the company are Anatoly Mostovoy, its founder and president, Vladislav Zakharovsky, general director, and Yuri Mostovoy. Yesterday a deal was closed for acquiring shares of one of the largest players in the Russian outdoor advertising market – Gallery Group. The new shareholders of the company are the European Bank for Reconstruction and Development (EBRD) and a fund advised by BVCP. This information was communicated to Vedomosti by Sergey Abramov, chairman of the supervisory board of BVCP, and Anatoly Mostovoy, Gallery Group president. According to Mostovoy, the EBRD, which granted a loan of $18 million to Gallery Group this summer, also became one of the shareholders. As a result, the company, which has worked only in Russian regions before, was able to enter the Moscow market, having bought Urban Image – the second largest outdoor advertising operator in the capital. Richard Wallis, press secretary for the EBRD, confirmed that the bank had become one of the shareholders of Gallery Group. According to him, the EBRD bought a “minority shareholding in the advertising company” for $5 million. The participants do not disclose the total amount of the deal. Andrei Berezkin, general director of ESPAR-Analyst research company, estimates the value of Gallery Group at $50 million at the least. Representatives of the companies do not comment on the allocation of shares between the new owners. Mostovoy only said that none of them has the controlling stake. For BVCP these are first investments in the Russian advertising market. Previously the company has invested in Golden Telecom, AlfaCement, Borjomi, Rusfinance, SladCo. As for media companies, BVCP has shareholdings in CTC Media, Yandex and Madame Figaro Magazine. BVCP is confident that outdoor advertising investments will be justified, as the market is developing dynamically. Andrei Kostyashkin, head of research at BVCP, says: “It’s too early to talk about specific growth and future profit indicators of Gallery Group. As a rule, we enter projects for 3-7 years, and we are sure that during this period the Russian market will grow, especially in regions.” Andrei Berezkin specified that the outdoor advertising market is growing by 25-30% annually. Last year advertisers spent $710 million for advertising, and in 2005 this figure may rise approximately to $850 million. The new shareholders do not plan any additional investment in Gallery Group. As for Wallis from the EBRD, he does not rule out the possibility that the bank will continue financing the company. Mostovoy did not specify an acquisitions strategy, saying only that yet Gallery Group is interested in the Saint-Petersburg market – the only one where the company is not yet present. Market participants and experts think that along with the appearance of the new shareholder Gallery Group will continue its active development. According to Sergey Zheleznyak, general director of News Outdoor, Gallery Group will be first of all interested in companies in the second tier of the Russian outdoor advertising operators. Berezkin believes that the strengthening of Gallery Group will allow normalizing the structure of the advertising market dominated by News Outdoor. “Everyone will benefit from the appearance of one more active operator, including News Outdoor with which no one has been able to compete recently”, he says. According to ESPAR-Analyst, News Outdoor controls about 20-25% of the Russian market and Gallery Group – 4-5%.
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