Energy trader MET is now fully owned by its managers following divestments by its widely known previous owners. The company is planning further acquisitions in Europe and will raise new equity.
Rumours about MET’s sale have been flying around for a year, and as CEO Benjamin Lakatos now confirms, negotiations had actually started about a year ago in Zürich, London and New York, and the proverbial white smoke finally rose on 30 May.
They ran into a number of dead ends along the way. What probably was the most comical moment when a well-intentioned Swiss banker proposed, seriously, that MET should try and win George Soros over, “because he is a flexible investor”.
The idea was not pursued any further. There were no Western investment funds coming either, no potential partners outside the company, and eventually the company’s CEO, Benjamin Lakatos, and a few other MET executives bought out the other owners.
Comings and goings
Among those who leave we find István Garancsi, co-owner of Videoton FC and Market Zrt, György Nagy, known mostly for his joint ventures with Sándor Csányi, and Mol which created MET in the first place.
The management team will gain full ownership of the company through MET Capital Partners, a new, Swiss-based entity, via a credit facility provided by the international ING Bank. The emphasis is on ‘international’: even though the parties did not disclose any details about the price, the sheer size of the deal and MET’s positions in Central and Eastern Europe meant the transaction had to be financed all along by banks and advisers, about ten companies in total, which have their headquarters west of the river Elbe.
Joint action
The simultaneous transaction seems to suggest a common mindset on part of the sellers, but as for the actual motives that prompted the previous shareholders to sell their stakes in the trading group which turns a constant profit, we can only guess.
According to MET’s management team, they did so mainly because as minority shareholders and financial investors they did not intend to take part in the consolidation of the industry that will unfold in the coming years, which will demand massive injections of new capital.
As outside observers we also should not rule out that shareholders might have been irritated by the constant barrage of negative press reports and denunciations in parliament concerning MET. However, divesting from a closed company is actually not that easy, and the intention to sell was allegedly not new, so now that a buyer was found everyone involved was happy to make the move.
The transaction will be a multi-stage process, with Benjamin Lakatos and a few of his co-executives becoming the new owners in the first round. MET Manco, a company whose name implies management participation, already owned a 10% stake and might now increase its ownership to 20%, joined by MET Capital Partners as the majority owner.
The founder of MET Capital Partners is Deneb Algedi Invest AG, the Swiss-based holding company of Benjamin Lakatos. Asked about the odd company name, Lakatos said he remembered it from when his grandfather, an amateur astrologer, talked to him about the brightest star of the night sky. The Arabic phrase means ‘tail of the goat’, by the way.
MET’s previous, fixed shareholding structure will become more dynamic. This could prompt a number of changes.
- In line with a remuneration model widely used across the industry, the best traders could receive part of their annual bonus in the form of stock awards.
- Finding new, attractive acquisition targets could as well bring about change by drawing in some of the big investors or specialty funds, who, obviously, must first be reassured about a safe exit.
Thorny issues?
For several years now MET has been under the spotlight of politicians and the press for a number of reasons,
- including a highly lucrative deal with MVM in 2012,
- and an ownership structure that left room for speculations and had previously included offshore companies, a mysterious Russian investor and a handful of Hungarian business potentates who were active in other sectors.
Benjamin Lakatos said he hopes the situation will settle down a bit after the transaction when it will be clear that the company is controlled not by owners with links to politicians but by its management team. This is substantiated by the multibillion euro credit facility provided to the company by international banks as well, Lakatos said.
...and tomorrow it will be international
Even though MET made significant investments in Hungary over the previous years (Dunamenti Erőmű, Dunai Solar Park, the ongoing takover of Tigáz’s gas infrastructure), only about 9% of the group’s total earnings of 7.59 billion euros come from Hungary. Continental Europe consumes 465 billion cubic metres of gas, MET traded a total volume of around 35 billion cubic metres, while Hungary’s annual consumption is 9 billion cubic metres.
Grow or die
But why do they anticipate a new period of consolidation in Europe’s gas markets? According to Benjamin Lakatos, markets went through three distinct phases over the previous 10–15 years:
- before 2006 only European energy majors were engaged in trading, the market entry threshold was at least one billion euros,
- then in the period 2007–2012, following the EU’s decision to separate infrastructure ownership and trading operations, the so-called unbundling, which meant that practically anyone with some financing and a network of contacts could become a market player. The bar to enter the market fell to one euro, and many tried their hands at trading,
- then, starting in 2013, the consolidation of the industry resumed, the biggest players such as E.On, RWE, Engie (the former GDF) built up their own trading floors, margins got tighter, and the threshold to enter the market climbed again to its current level of around 100 million euros.
MET wants to take part in this consolidation, and has already started buying up commercial portfolios, including the clients of EMFESZ and then GDF, and expanded into markets such as Slovakia, Croatia, Spain, Italy and Romania.
Buyers are in a favourable position at the moment due to the high number of prospective sellers, but it is fairly difficult to put a price on trading companies which might see their value rise or fall on the whims of a rapidly changing environment, such as movements of even a single currency pair. In addition, this sector is highly dependent on the human factor, and a company will be worth close to nothing if key employees leave after a takeover.
Ilya, the Russian vanished
MET had a mysterious Russian owner, one Ilya Trubnikov, of whom hardly any information can be found online. He was allegedly brought in by György Nagy, and when the Russian businessman quit, it was Nagy who bought his shares.
Licking their wounds
MET prefers to buy when there are not too many rivals around the negotiating table. Competing for energy assets is not fruitful if interest runs high, because there always will be a highly liquid large-cap competitor that wants the deal badly and is willing to overprice.
Buyers who are more nimble, more flexible, benefit from extraordinary events which open up new transaction opportunities. The unusually cold winter of 2017 for instance turned the Romanian market on its head. Many traders were forced to pay high prices for power to be able to meet obligations, and some traders folded, taking down others too.
MET now believes it was actually lucky to miss out on buying the Mátrai Erőmű power plant.
Business deals that have anything to do with coal are now judged so negatively by banks across Western Europe that the financing of MET’s management buyout would have likely fallen through if MET was involved in the Mátrai deal.
LNG
However, MET became an active player in the market for liquefied natural gas (LNG), where a single deal, that is selling a single cargo of LNG, starts at around 50 million dollars. MET up to now made a total of 10 such transactions and while the business is profitable on the whole, its most exotic deal, which involved directing an LNG tanker from Trinidad to India, ended in a loss.
What looks just like gas trading from the outside could encompass a whole range of different business deals. Gas market agreements are essentially uniform and have a well-known structure, and while most industry players seek to optimise for price or the security of supply, MET is coupling different options, linking up markets otherwise not connected, or, to use a technical term, it is monetising real options.
As Lakatos explained, MET mostly employs economists and traders rather than engineers or energy industry professionals.
It is a bit like booking tickets for a journey from A to B on several potential routes or flights and then buying only the most favourable one. And how long can this business go on?
“We don’t know what the future holds, and even in Europe, where changes usually come only slowly, it is impossible to predict what will happen in the energy industry even just in the next year or two,” Lakatos said.
Changes might come very quickly, for example if Google or Apple would release energy trading apps, if we would see a breakthrough in energy storage technology, or if the question whether energy production remains central or becomes local gets settled. It looks certain we will see revolutionary changes, but at the moment gas seems to remain a key fuel while highly polluting coal is increasingly disappearing, nuclear is already banned by many countries and oil increasingly serves only as a raw material for the petrochemical industry.
This is the situation now, but the energy mix could see a revolution any time. And when the big change actually comes, all will need to respond very quickly.
Source: Index.hu