Kommersant

After deciding against the purchase of a 25% stake in Atlant-M, a Moscow-based auto holding company, Russian Retail Growth Fund (RRGF) - managed by Svarog Capital Advisors - has not abandoned its intentions to invest in auto retailing. RRGF is negotiating to acquire a blocking stake in Avto Plus, a Toyota dealer in Yekaterinburg. This will be the first private placement among regional dealers, whose business growth rates are double the rates found among Moscow dealers: 20-30% compared to 10-15%.

It was reported in February 2008 that RRGF, managed by Svarog Capital Advisors (formerly Renova Capital), planned to invest in auto retailing and was negotiating to buy a 25% stake in Atlant-M. Alexander Pyrko, general director of Atlant-M in Russia, announced on August 21 that this deal will not go ahead. "We were unable to agree on a price, so we weighed up our opportunities and decided that we can do without this placement for now," said Pyrko. According to a source at the fund, it was Svarog that broke off negotiations; it was dissatisfied with Atlant-M's due diligence results.

A source close to the fund reports that after deciding against the Atlant-M purchase, Svarog Capital has found an equally interesting asset to acquire: in the regional market this time. According to our source, in early September Svarog Capital will announce its purchase of a blocking stake in Avto Plus, an auto dealer holding company in Yekaterinburg.

Svarog Capital partner Oleg Tsarkov declined to comment.

A source close to the negotiations told us: "The option being considered is buying less than a controlling interest in Avto Plus, in line with the fund's strategy."

Pavel Shestopalov, Avto Plus general director and chief stakeholder, has declined to comment on any of these reports until September 10.

Igor Kovanov, managing partner at Falcon Advisers, estimates that 100% of Avto Plus would be worth 10-12 times EBITDA (assuming EBITDA at 5-6%): that is, $150-216 million. So 25% of the holding company could cost Svarog Capital $37-54 million. The fund had been prepared to pay $50 million for a similar stake in Atlant-M.

RRGF was established in 2006; its specialty is investment in consumer markets. The fund's volume is $300 million, with $60 million of that coming from Renova Group (Viktor Vekselberg). Alexander Mamut has confirmed that he is involved in the fund. RRGF owns blocking stakes in the Spar and Holiday Classic grocery chains and the SPSR Express delivery service.

Avto Plus operates two auto centers (Toyota West and Toyota North) in Yekaterinburg and the Any Motors salon in Nizhny Tagil (Audi, BMW, Chevrolet, Citroen, Ford, Honda, Volvo, etc.); it also owns 50% of Italian Automobiles (Alfa Romeo dealer in Yekaterinburg). According to industry sources, its market share is 28-35% for new Toyota sales in the Sverdlovsk region. Its turnover in 2007 is estimated at $300 million.

The deal between Svarog Capital and Avto Plus will be the first investment by a fund in regional auto retailing. Until now, investment funds have preferred to buy stakes in Moscow-based companies. In February 2007, for example, Volga River One Capital Partners bought 33% of Genser and AIG Russia Century Fund bought 9.9% of Inkom-Avto. Last spring, Alfa Capital Partners bought 50% of Nezavisimost Group.

Igor Kovanov maintains that the business growth rates of regional dealers far exceed figures for Moscow-based auto holding companies, so many investment funds are taking interest in new markets.

Valentin Antropov, director of the Urals Association of Auto Business Enterprises, agrees with that view: "Sales are growing at 25-37% per annum in the Yekaterinburg market."

Metropol Investment analyst Mikhail Pak estimates that business growth rates for auto dealers (in monetary terms and the number of showrooms opened) have slowed in Moscow, to no more than 10-15%. Pak says: "This indicator was around 20-30% in 2003-05, like it is in the regions now."