The Man Who Bought MET
MET Group is now at an important turning point for European markets, according to the energy trader’s chief executive Benjamin Lakatos, who seldom visits Hungary and speaks to the press even less often. The industry veteran said it is ‘not justified’ that the company is mentioned mainly in a political context even though 90 percent of its revenue is generated outside Hungary and its success can be attributed to a growth model founded on human capital.
‘28 countries, 32 nationalities and 33 languages’ – as the company’s founder describes MET Group’s international character, which has more than 500 employees, adding that most employees are highly skilled intellectuals who are mainly engaged in activities related to energy trading and trading operations in general.
There are about four competences a commodity trader needs to be successful: you need excellent people, the appropriate physical and trading positions, some financial clout and state-of-the-art IT systems. However, this sector is strikingly similar to business consultancy in the way that human capital constitutes a much higher proportion of the company’s total value than its level of capitalisation or its physical assets and IT systems, Lakatos said.
‘What we saw, especially at the time of launching the company, that the qualities of employees can be a decisive, although not exclusive factor in terms of results. At the same time, we are young business entrepreneurs, which is reflected in our company culture too. The average age at MET is 36, compared to 43 at similar companies in the industry. I regard this as a highly valuable asset,’ Lakatos pointed out.
A hard start
Many will remember that Benjamin Lakatos started out as a stock market journalist at the weekly Figyelő, but now he says this was only a “minor diversion”.
“I was a rubbish journalist, the kind who is technically professional but has no idea what readers want. In those days I was playing a lot in the stock market and considered myself more of a financial expert. It became obvious very soon that journalism is not for me”, Lakatos concedes.
As a student of finance at the Budapest University of Economics at the turn of the millennium, Lakatos already sought to work abroad, but at the time did not succeed.
“After graduating I wanted to work in New York, but my US visa had just expired. I’d had two friends working at Mol though, and they recommended the company, saying ‘at last there is a Hungarian corporation serious about foreign expansion and acquisitions’. Their ‘lure’ was that at Mol I could work with London-based investment banks.
From 2001 I was involved in mergers and acquisitions (M&A) at Mol. This was tough, but I could learn a lot: for about 4-5 years I was involved in every single acquisition of Mol. This is a fairly complex area, mostly finance-related, but permeated by law and accounting too. You have to become somewhat proficient in everything, and, in the end, must have an understanding of business operations as a whole. If you are working in M&A, then you will either end up doing it for life or become a CEO”, Lakatos explained.
How was the idea of MET born?
“The one and a half years I spent as head of business development at Mol’s upstream (exploration and production) division was probably the most exciting, most instructive period of my life,” Lakatos said. “What I mainly did, or at least was supposed to do, was buying up exploration concessions, oil and gas fields across Northern Africa, the Middle East and the former Soviet republics. I spent around 200 days a year in different hotels, in a different place every single time. After a while I had this uncomfortable feeling that I didn’t know which country or city I was in when I woke up. So, I started to feel it is time for a change,” Lakatos said.
Following this stint, Lakatos found himself at Mol’s gas business, which was gearing up for some major manoeuvres at the time. “Mol sold its gas business to E.On Ruhrgas in 2006, and I was involved in the deal as a member of the transaction team. The deal was dragging on for close to two years, allowing me to familiarise myself with Europe’s gas industry. However, Mol still held quite a few gas positions even after the deal was closed, including the Nabucco and South Stream projects and strategic gas storage facilities. At this point there was no finalised strategy. We’ve had to find out what to do with these positions, because Mol at the time, just like today, was not minded to enter the gas market.”
...then everything changed overnight
The founding of MET coincided with the liberalisation of gas and power markets: the EU in 2007 ruled that access to infrastructure must be ‘unbundled’ from trading. “This decision transformed the industry overnight, and did so without the industry itself taking note,” Lakatos said, highlighting an interesting point.
Until then, this was a very tight industry. The market in each country was dominated by one, or at most two major infrastructure owners (such as Mol in Hungary), which had built and operated these immense pipeline systems, storage and other facilities, and made trade transactions through them.
"After the EU’s ‘unbundling’ decision, the bar to enter gas trading all of a sudden fell to one euro from the previous one billion. At that time, there were a total of about 200 top managers in the gas market along the Berlin–Moscow–Istanbul–Rome axis, and I was, by all likelihood, the youngest of them,” Lakatos added. Most of them were engineers, preoccupied with issues of supply security and very good at building up well-functioning, efficient infrastructure. Then there was me with my finance-oriented mindset, speaking about real options and how to optimise financial products.
I’ve had a huge advantage there, as unbundling turned gas trading into an area of finance almost from one day to the next. Suddenly the knowledge I had was needed: after all, this was the field I educated myself in and had the chance to study the industry from the inside for years too. This proved to be a very lucky and highly favourable mix, and at the time I was also young enough to take risks,” Lakatos explained.
Setting off with no example to follow
“What I saw then was that top managers in the industry looked at the sector in terms of management and investments rather than from a finance-based aspect. We, on the other hand, produced financial models and started optimising commodities against each other,” Lakatos said.
“Mol by this time saw this unit as more of a burden, a young subsidiary keen on taking on huge, ‘unforeseeable’ risks. So eventually the decision had been made that we split off from the energy giant, which still kept a 50% stake, but it was us who had to run the risks. However, in the first two-three years we kept the name ‘Mol Energy Trade’, which was a very important ‘soft’ security asset.
The other pillar on which the MET of today had been built is our concept of HR: over the first five or six years we were fuelled by human capital. The concept was simple: we wanted to hire extremely capable and highly motivated people who were ready, just as I was, to put in 100-hour work weeks. But then the compensation package we offered would have been inconceivable at an energy major: we paid performance bonuses, and well above the industry average. What we are doing is very similar to what elite athletes do: to win you must go to the gym day by day and go through your training routine.”
According to Benjamin Lakatos, looking back almost a decade it is now clear that MET’s success was grounded in the operating model laid down early in the beginning. Last year the company’s total turnover stood at EUR 7.5bn, it was listed among the top three traders in Central Europe’s biggest gas exchange platform, the VTP in Austria, and was in the top 15 in the Dutch TTF, the biggest gas exchange in continental Europe.
According to Lakatos, just the fact that an energy company from the CEE region can “play at the same table” as the major incumbents of Europe’s gas trade is a huge accomplishment. To put that into context, MET Group last year traded a total of 35bn cubic metres of gas, four times the annual consumption of Hungary.
“We think it is unjustified that the discussion in Hungary about MET is taking place in a political context while the company evolved into a European success story. This is a business of ‘taking care of the pennies and the pounds’ and not in the way that certain people have imagined. We are not involved in politics, we are measured by our trading performance at the European level. MET’s position in Hungary does not stem from any sort of political links but from its unique, integrated operating model and professionalism. Anyone who ever worked with us could attest to this, it is something obvious from inside the company,” the company’s founder stated.
However, what Lakatos thinks is even more important than the company’s image in Hungary is that MET is on the verge of becoming one of the winners of the consolidation, or we could even say attrition, of gas and power trading in Europe.
“Our primary efforts are aimed at successfully navigating the wave of consolidation in European energy markets that started about 4-5 years ago.” MET’s secondary goal is to devise infrastructure-based strategies, which encompasses the acquisition of gas-fired power plants and other gas and electricity infrastructure assets, and a renewable energy strategy, under which the company just launched construction of one of Hungary’s largest solar parks.