Agista, Romania's pioneering growth fund, is transforming the local private equity landscape. Launched in 2022 as a member of the Impetum Group, Agista focuses on partnering with companies to fuel their development without taking control.

Dragos Darabut, Senior Investment Manager at Agista, explains, "with Agista, we are not looking to take control but to partner. The money we come with does not go directly to the shareholders or the founders but enters the company for development."

Agista occupies a unique niche within the Impetum Group, which also includes ROCA Investments and ROCA X. ROCA Investments acquires majority stakes in companies, while ROCA X invests in early-stage startups. Agista’s strategy centers on providing growth capital to companies poised for rapid expansion. This approach allows companies to accelerate their growth, leveraging Agista’s capital and know-how to achieve what would otherwise take many years.

The local private equity market in Romania, though relatively young, presents significant opportunities, particularly in fragmented markets. Darabut highlights this aspect, stating, "There are quite a few fragmented markets... These are fragmented markets that we can consolidate." This strategy involves either organic growth or mergers and acquisitions (M&A), tailoring the approach to the specific needs of each sector.

Agista's investment approach is highly selective, focusing on industries with high-profit margins and reasonable levels of debt. The fund seeks out companies that have demonstrated profitability, solid management, and a strong market position. Once an investment is made, Agista takes an active role, joining the board of directors, bringing in auditors, and ensuring robust financial management. However, the operational control remains with the founders, whom Darabut believes are best suited to drive the company's growth.

One of Agista’s notable investments is in Centrokinetic, a network of medical recovery clinics. Since investing last fall, Agista has helped expand the network from three to eight clinics across Romania, with plans for further growth. This rapid expansion illustrates Agista’s effective strategy of providing growth capital and supporting management teams to achieve accelerated development.

Read more in the Q&A interview below:

How do you define Agista, and what is the place of this entity in the Impetum group? What is the niche it occupies?

Dragos Darabut: The Impetum Group currently has three fairly straightforward products: ROCA Investments, which is a buyout fund, that is, it buys majority stakes in companies; ROCA X, which invests in early-stage companies in start-ups; and Agista, which is looking for companies where it can partner with the founders.

So, with Agista, we are not looking to take control but to partner. That's the big difference. The second difference is that the money we come with does not go directly to the shareholders or the founders but enters the company for development.

What does the local private equity market look like, and what are the opportunities for local funds?

Dragos Darabut: In Romania, we see a rather high need for private equity. The market of local funds started to develop about 5-6 years ago when the first funds of this kind appeared, funds with local management teams and structures. Private equity funds have existed in Romania before, but they were managed from outside the country.

Where do we see an opportunity? There are quite a few fragmented markets. Fragmented markets mean that there are a lot of players, and the big, top 5, or top 10 don’t own a substantial piece of the entire market; they own a small piece – say, the top 5 companies own less than 20 percent. These are fragmented markets that we can consolidate. In other words, we can build bigger players by starting from an investment in a company that can either buy other companies through M&A or take market share from other players through organic development.

The consolidation pattern depends on the industry. In manufacturing, development would mean opening new factories. In the medical sector, development can mean opening new workplaces, bringing in new doctors and nurses, and offering more services throughout the country. We're looking at finding these fragmented markets where we can build bigger players.

How does a growth equity fund work, and what needs does it cover on the market?

Dragos Darabut: The companies that we partner with, or that a private equity fund usually partners with have already demonstrated that they have a profitable product, have built a decent management team, and have a good market position. These companies have two options for development: either to continue at the pace that the business allows, in other words, to finance the growth with the internally generated funds, or to attract a partner who will come with capital and help them develop much, much faster.

For example, a medical network with three clinics can open three more on its own in five years but, with a partner, it could open 15 clinics in five years. Then, instead of reaching 6 clinics, it can reach 20 as long as market conditions are still favorable for expansion. Market fragmentation will not last forever; at some point, it will consolidate.

When we talk about consolidation, a success story that I like is Banca Transilvania, which, about eight years ago, started consolidating the banking market and became the leader with a 23 percent share and, according to the statements I have seen, Banca Transilvania will consolidate it further. When Banca Transilvania started this process, the banking sector was unconsolidated; now, it is somewhat more consolidated. We try to do the same thing with the companies we invest in.

Where does the funding for Agista come from?

Dragos Darabut: As a general rule, private equity funds prefer to raise capital from institutional investors, which include family offices, pension funds, and funds dedicated to private equity, such as the European Investment Fund, EBRD or IFC. Until now, we have focused on ​​private investors, i.e., High Net Worth Individuals who want to allocate part of their portfolio to the area of ​​private equity.

That comes with some advantages, at least for Agista's current stage, namely flexibility, which we can also pass on to transactions. In the early stages of a business, you need to think fast enough and make decisions fast enough, and we can do this. We don't have very bureaucratic, very complicated structures.

Of course, as the deal values go up and the companies we invest in become larger, with more employees and more procedures, we will probably need to attract money from institutional investors as well. But at the level we are at, with deals between 2 and 5 million euros, it is an advantage for us that we attract capital from individual investors.

How big is Agista, and how much money have you attracted so far?

Dragos Darabut: Agista was launched in 2022, and the capital promised by investors is 20 million euros. We have already allocated approximately 70% of this money to transactions, and we still have another 30% available that we want to allocate in the next 12 months.

How does the selection process work for you? What are the main criteria by which you develop potential investments?

Dragos Darabut: The whole game in private equity - whether we are talking about buyouts, growth equity, or other investment thesis, - is to take a company from its current level and, in 5-7 years, to make it several times bigger. There are several ways you can do this. You can invest in a company that will, in turn, buy other companies or a company that will grow organically, opening more work points, or expanding production capacities, or a combination of these two.

Thus, the market you choose is very important. You will have a harder time if you enter as a minor player in a very consolidated market with small margins, high leverage, and very long customer payment terms. It does not mean that you will not be able to succeed, but the probability of success is lower. That's why we look to the other side, i.e., to industries with high profitability margins, with a reasonable level of debt, and where you don't have to borrow all the time to finance your customers who don't pay on time, for example. We also target industries that we can understand well and where we can also bring value.

After we select an industry in which we want to invest, we study the top 10 or top 15 companies in that market and look for that company or that management team that shares our vision to accelerate its business, to switch from third gear to fifth if you will. Sometimes we find teams like that, sometimes not. It's a numbers game, the private equity industry, in that you have to see a lot of companies, 100-200 maybe in a year, to find one to partner with. But it's an exciting game.

Of course, after we find the right industry and company, structuring the transaction is also important.

Can you give us some examples of sectors you prefer?

Dragos Darabut: With Agista, we mainly follow emerging industries with development potential, such as IT&C, healthcare, recycling, and agritech, but we are not limited to these. As I said, we are interested in fragmented markets with consolidation potential.

For example, we look closely at the medical sector, which has several sub-sectors, child care, adult care, and senior care, each with sub-sub-sectors. There are already 3-4 big players in healthcare sector, which have already consolidated in the last 10-15 years, but there are still sub-markets which are under consolidation. As a growth fund, we want to associate with players that offer a more niched service, and here we have, as an example, Centrokinetic, a network of medical recovery clinics in which we invested last year.

Centrokinetic is currently Agista’s showcase investment – what is the growth strategy you applied for this asset?

Dragos Darabut: We invested in Centrokinetic last fall and brought capital for development. At the time of the investment, the network consisted of three clinics, and at the moment, there are eight Centrokinetic clinics in the country. We opened two from scratch, one in Cluj and one in Bucharest, in the Dristor area, and we acquired three others, one in Timișoara and two in Brașov. Thus, compared to the moment of our entry, when Centrokinetic present only in Bucharest, we have now become a national network and are present in four cities. The plans are to continue doing much the same to reach quite a large number of clinics.

Investing in a new clinic means finding the right location in the city and bringing in the right equipment and medical team. We already have procedures, collaborators, and suppliers for equipment, and we are also moving quite quickly on the medical side. The fact that we are already at eight clinics, means that people have heard about us, also, the founder, Dr. Bogdan Andrei, is quite well-known in the country all help us attract teams of doctors and physiotherapists relatively quickly. After a clinic’s opening, there follows a period in which the business becomes more and more known, obviously also with the help of the local marketing that we do. But it's several months in which we aim to reach breakeven.

Usually, a new location can break even within a few months of opening. That depends on a number of factors, such as the city, area, and location chosen and how well-known the brand is in that city. In Bucharest, for example, the Centrokinetic brand is very well known, and the locations reach breakeven from the first month, while in other cities outside Bucharest, this takes several months.

What is Agista's average investment in a company, and what share do you target in a ticket?

Dragos Darabut: In general, we invest somewhere between 2 and 5 million euros. There may also be transactions in which we initially invest a smaller amount, but after a certain period, we bring more capital, if necessary, or if specific scenarios are met.

As a rule, we take minority stakes, come with the capital, partner with the founders, and let them run the business further. We do not rule out majority shareholdings or structures that would eventually give us a majority.

After the transaction, what do you bring to the company, what kind of know-how, and what is the level of involvement?

Dragos Darabut: In terms of the level of involvement, we have a few boxes to tick. The first is to enter the Board of Directors. Then, we come with auditors because an external audit would be a good source of verification of the company, offering additional credibility to banks and other partners. We also ensure that the financial department is sufficiently well developed, i.e., the management team includes a financial director or a chief accountant, depending on the company’s size.

Our involvement in the operational area of ​​the business is lower because we bet on the founder, who has brought the business this far and knows best how to operate it. But if we can help with M&A, we do. And we do it almost entirely, in the sense that a transaction lasts 5-6 months and involves negotiations, due diligence, and document drafting. So we take care of this part.

Again, we specialize in the post-acquisition integration part because it is essential and can be replicated in the future. When we invest in a company that buys other companies, we face different procedures and organizational cultures, different software, and different teams on the marketing and legal side, and we must be able to make them more efficient.

In short, we aim to develop complementary skills so that the founder can continue to manage organic growth, and we help with M&A and integration.

What is Agista's exit strategy?

Dragos Darabut: As a general rule, private equity funds of this type want to exit in five years, maybe four years, because investors also have high expectations regarding the return the funds should deliver. The funds want to catch a period when the money invested has created value, and the return you get in a short period of 4-5 years is maximized.

We are not different from this standard structure, but we have a dose of flexibility. If we find businesses that we can say will grow at the same rate even after five years, we can stay longer than that. I mean, we don't have the pressure to exit in five years. Otherwise, we will align with the market standard for about five years.

Regarding the exit, we’re looking to sell to local or international strategic players or private equity funds. We do not rule out stock market listings. For minority stakes, a stock exchange listing may also be feasible under certain conditions. We only have a few examples in the country, such as MedLife and Purcari, and there will probably be more at some point. We do not have a different exit strategy compared to other funds.

What are Agista's plans for the coming years?

Dragos Darabut: As I said, we still have 30% of the initial capital (EUR 6 million—e.n.), which we want to allocate over the next 12-18 months. We have several transactions in the works, some of which are in more advanced negotiations. After that, we want to manage and grow the portfolio companies. We still need about 3-4 years to make the first exit.

In the meantime, we want to continue developing this growth equity model and raising additional capital. We could launch another fund on a similar structure or on an institutional structure.

But our main focus for the next 12 months is to allocate our capital and manage our companies as well as possible so that our returns to investors are satisfactory. If this happens, we are convinced that investors will continue to trust us.

*This interview was written by the Romania Insider team for Impetum Group.