SCA completes series of advisory projects, M&A and JV deals for mHealth, eHealth players
We have completed our 2-year work with a large Russian manufacturer of physiotherapy and diagnostic devices, which has been making an active foray into the mHealth (mobile health) market. The company has developed specialist software and data transmission protocols to link up the equipment to mobile phones. This company has also teamed up with Russia's leading eHealth (electronic health) player to expand into other countries.
Initially, we helped the mHealth player develop a new market strategy for expansion both inside Russia, and in selected other markets globally. Due to the company owners' Muslim background, the focus was put on specific countries in the Middle East, and also India and Southeast Asia. To select the best target markets, we did detailed analysis of technological, economic and regulatory factors, weghing up things like smartphone penetration, broadband connectivity, per capita income, share of out-of-pocket medical expenses, etc. Within each country market, customer portraits and preferences were studied and quantified, and a detailed financial model was built to validate market entry and business model choices.
We have also accompanied several M&A and JV deals in process, and did deal structuring and valuation exercises, including for IP rights. First, the company shareholders were deciding on legal structuring for the various tangible and intangible assets, as two R&D and manufacturing entities were joining forces. Later on, additional funding was attracted to further scale production (as certain parts of the assembly process were moved to China, with IT and final assembly remaining in Russia), and marketing.
The mHealth company also decided to team up with the eHealth player, which had already been working in CIS and Western Europe, to expand into the UAE. For this, we helped establish a JV, working on deal structuring and other issues. Last but not least, an Indian healthcare-focused VC and PE fund also joined the ride, teaming up with the mHealth and eHealth players in UAE and India. The parties are now discussing further expansion steps, and we wish them all the very best!
Georg Polymer implements recommendations, obtains financing, improves financial result
Georg Polymer, one of the largest Russian manufacturers of polypropylene (PP) and polystyrene (PS) roll (PPR and PSR, respectively), has implemented the set of recommendations we had developed earlier in the year, and managed to dramatically turn around its financial wellbeing. The company had been struggling to break even, and was consistently in the red over the last 5 years, being affected by the 2008-2009 financial crisis.
The company has decided to restart PPR production, as we recommended, viewing the upcoming launch of massive new PP capacity on the Russian market and subsequent expected sharp drop in raw material prices (which our market balance calculations had proved). The focus on PSR will be gradually reduced, not least due to emerging ecological concerns about the product in a number of use cases.
Also, per our conclusions, the company shifted its focus from specific kinds of products in certain industries, which were straining the company's resources, but yielding very low margins. E.g. the yogurt segment, where asset consolidation had taken place and competition for the remaining olygopolystic clients is fierce, thus downward purchase price pressure is huge. Also, the company has started to focus on new, rapidly growing segments we advised on, e.g. in-flight catering, and certain segments in meat products. Altogether, the company boosted its product range from 4 to 11 types of PPR and PSR. Sales have thus doubled just over the last 6 months since we completed our work, even though the company was already a top-5 player in Russia!
Additionally, we analyzed the prospects and advised entering the end product segment, i.e. packaging, including PP containers. For this the company set aside part of the production premises and he company attracted a loan for new equipment. But in line with our estimates, the loan size was reduced 5 times, and the period - 3 times, because anything more would have been too costly at this point. The company has expressed its gratitude and strong appreciation for our work, and we are excited to see results coming to life so quickly. The company's combination of prudence and boldness has made it happen!
SCA finishes series of advisory projects, oversees launch of new product for SaaS VCS major
Strategic Choice Advisory has finished a series of advisory projects, spanning over 2.5 years, with a leading Russian SaaS (software-as-a-service) VCS (videoconferencing service) player Mind Labs (originally, CMD Labs). The company is a spin-off of one of the biggest Russian share depositories Central Moscow Depository (CMD), and was created to explore the rapidly developing new cloud computing space. Its iMind (otherwise known as Mind) and other products are widely used by corporates, banks, telecom operators, and government authorities.
Initially, in 2010, SCA Managing Partner & CEO Andrew Afanasiev led an advisory project with the company, focused on selecting and prioritizing foreign markets, and developing a corresponding strategy for market entry and expansion. Early on, though, the detailed financial modeling that was performed uncovered certain gaps in the company's strategy and finances. Thus, the company decided to first focus on establishing its presence on the local market.
In late 2011, Mind Labs asked our team to review each of the products they were working on, including the main VCS and webinar product iMind (Mind), online education tool/platform, expertise platform, cloud video surveillance software and cameras, click-to-video widgets for eCommerce, and etc. By then the company had run into financial difficulties, as the overcrowding of relevant markets drove down prices and damaged profitability.
Plus, product development and servicing proved to be extremely costly and not very efficient, thus we were tasked with looking into corresponding processes and developing an efficiency improvement program. The company also wanted to enter Asia Pacific markets (which needed to be prioritized first), and attract new investors to help scale the business.
As a result of the latest 10 months of work, we have concluded that only one product, an online education and expertise platform, can become profitable, with certain chances also in cloud video surveillance. Andrew was also asked to join the Board of the abovementioned most lucrative product, and made responsible for overseeing the product development process.
We concluded that the other services, apart from iMind, are best closed down, with staff redeployed onto the remaining products. Recommendations were thus developed to improve iMind's profitability. For this, we also helped craft proposals to leading telecom operators and system integrators, tenders which Mind Labs went on to win. Entry into Asia Pacific markets was thus put off, although discussions with potential investors still continue, and we hope they become successful.
SCA CEO speaks on bank strategies at National Banking Forum
Strategic Choice Managing Partner & CEO Andrew Afanasiev gave a speech on "Bank Strategies: Borrowers' Efficiency" at the National Banking Forum, together with SCA's partner debt advisory firm ICG First Managing Partner Aleksey Poroshin. In his speech, Andrew examined the key trends in the Russian economy, that is recovering now from the 2008-2009 financial crisis, and in the banking sector that is now exploring new products.
In 2008, Andrew served as deputy CEO, Head of Research, and acting Head of Equities at Nordic European investment bank Glitnir, helping the bank avoid making losses that year, even despite the 70% stock market crash. ICG First focuses on advising corporates and banks on mutually beneficial debt products and other services, and structuring related debt financing deals. Andrew and Aleksey made a strong point about proper credit risk analysis and performance monitoring, to ensure the borrowers' solvency and timely debt repayment and servicing. Also, Andrew also outlined promising new products banks can focus on in the mid-term.
Strategic Choice decides to penetrate deeper into Asia Pacific markets, establish local presence
Summing up our experience working with Asia Pacific region (APR) clients in Russia, and following a road show spanning 5 APR countries for an IT sector client, SCA has decided to shift its strategic focus and approach to working in Asia. Practice shows that by the time new market entrants land in Russia, they tend to have some sort of knowdlege and ideas for the local market, which are often very fragmented and sometimes plain incorrect. Companies tend to rely on open internet search or reports from consultancies based in their home countries, that lack the on-the-ground intelligence and insights required to make informed decisions.
A major takeaway from this extensive, gruelling, but fun-filled trip, which saw us make 7 flights in 12 days, was the importance of good relations and locals referring you to contacts you need and to potential clients. All this requires local presence, and being in constant contact with the business communities you strive to service. We have thus made a strategic choice to be more present in these markets, visit often, hire local consultants in countries we plan to work in, and build partnerships with local firms, to provide a more comprehensive service. We are very excited about working in the buoyant Asian markets, and are hoping to developing new lasting relations and helping firms there make successful entries into Russia.
Work completed on troubled plastic packaging maker turnaround advisory
SCA has finished its turnaround advisory project for Georg Polymer, one of the top-5 Russian manufacturers of polypropylene (PP) and polystyrene (PS) roll (PPR and PSR, respectively). Despite being one of the market leaders, the company has been struggling to break even, and was consistently in the red over the last 5 years, being affected by the 2008-2009 financial crisis.
Among our recommendations are resuming PPR production, as large new PP capacity is being launched now in Russia and PP purchase prices are expected to drop.
Also, we are advising to shift the focus from specific kinds of products in certain industries, that draining the company's resources, but yielding very low margins amid weak pricing power in these industries. Instead, we believe the company should focus on new, rapidly growing segments, and thus expand its product range.
As data on PPR and PSR consumption in target market segments is very disparate, scarce, and aggregated into broader-than-needed categories, we had to painstakingly estimate the market size for each minute segment and specific product. In order to assess and compare market growth dynamics, we had to build historical data sets going several years back, reconcile it with more transparent end product markets to check, and then build forecasts for each end product and company product. We think we will never forget the number of all-nighters we had to pull in endless calculations on this project...
Going forward, we believe the company should also finally try to enter the end product segment, i.e. packaging, including PP containers. The company is now making due preparations, and we are anxious to see Georg Polymer break through with this and other initiatives!
Our consulting practice changes its name to Strategic Choice Advisory (SCA)
After much consideration, the company's Partners Andrew Afanasiev and Sergey Trofimov have decided to change the company name to Strategic Choice Advisory (SCA). Rebranding is now taking place, and corresponding legal structuring is due to take place shortly.
Originally, the consulting practice and legal entity was named Turning Point Consulting (TPC), as the company was founded in early 2009, just after the start of the global financial crisis. At the time, it was quite becoming, reflective of what we were mostly doing then, i.e. advising at a turning point in the clients' business. As the crisis impact has eased, and more and more companies have started expanding into new areas again, we feel the name Strategic Choice is more suitable now, applicable to both crisis periods/ troubled assets we work with, and growth periods/ expansion-oriented businesses we advise.
We remain committed to the same values of being a guiding light, a beacon of clarity and confidence in the multitude of options, and in the sea of uncertainty. We are happy to take our clients further, and help them perform better with well-grounded advice and bold solutions that we develop.
Work on innovative physiotherapy equipment and mHealth player's strategy completed
Our consulting company has finalized a 6-month effort on developing the business strategy and financial model for a leading Russian physiotherapy and diagnostic equipment maker reaching into the rapidly developing mHealth (mobile health) space. The company has developed special software for controlling the electromagnetic therapy devices, miniaturized to a wearable format, via a mobile app on the user's smartphone.
Production of the new wearable devices had been launched some time ago, and our job was fine-tuning the customer segmentation and expansion strategy in Russia, and also choosing the most promising foreign markets to focus on. Due to the owners' Muslim background, we selected a number of markets in the Middle East, India, and Southeast Asia. Our work involved making a special proposition to beauty, spa and fitness salons, which was an exciting new experience for us, going beyond our traditional healthcare domain.
In process, we also helped the four owners merge their two companies in production and R&D, respectively. This has also allowed injecting additional capital into development of the new products and rollout on new markets. For this, we did detailed intangible asset valuation, developing a special methodology, which we will be glad to utilize in further projects. We will be continuing our work with this client, and hope to help them reach new heights on new world markets.
Challenging strategy, efficiency, forensic study project on first major fiber optic plant completed
We have completed an efficiency, strategy and forensic study project at the first industrial-grade optic fiber plant in Russia, based in the Central European part of the country. The plant costing tens of millions of EUR was acquired by the current owners from the bankrupt previous owner just before the 2008 financial crisis, but despite additional investments, never managed to take off the ground. Only some small-scale preform production and trading was taking place, and the new owners, together with regional authorities, were eager to find out what had gone wrong (and what can be done right).
We made detailed calculations for all 3 processing tiers, possible sales volumes for each projected product (personally contacting all potential customers in Russia and CIS), and took into account the required re-launch and re-formatting costs. The results were still negative for optic fiber, unfortunately, but the first two tiers still made sense, albeit not allowing to fully recover the initial capital expenditures. Serious flaws were uncovered in project assumptions, as the price of the most expensive product (which only takes up 3% of the Russian market) were used for all 100% of production... And this was just one example.
After we submitted the final report, we had to answer up to regional authorities and law enforcement bodies, who were devastated by the fairly negative conclusions and demanded full and detailed answers for every number and phrase in our project deliverables. Another 1.5 months of testifying and substantiating later, our conclusions were proven correct to the tee, and we were finally let go, receiving the much-awaited final payment. It just goes to show how important it is to make the right market and financial assumptions from the start, and maintaining a balanced approach to running a large manufacturing plant.
Partnership formed with debt advisory ICG First; strategy and efficiency advisory project kicks off
Our consulting company and leading debt advisory firm ICG First (https://www.icgfirst.ru/) have decided to join forces in pursuing opportunities and executing projects requiring detailed substantiation for debt financing and restructuring deals. We bring substantial strategy, efficiency and M&A advisory expertise, while ICG First provides a well-developed banking sector contact network and sophisticated debt advisory skills to the joint product mix. We share a similar rigorous approach to analyzing and structuring projects, and believe in finding win-win solutions for both lenders and borrowers.
On a separate assignment, out consulting pricate will also conduct a strategy and efficiency advisory project for ICG First, as the company seeks to further expand its market presense and scale its business efficiently. For this purpose, and for executing joint advisory projects, we will be moving in with ICG First at their lustrous office in a historical mansion at 8-10 bldg. 8 Gasheka str., Moscow, 125047, Russia. We are looking forward to making beautiful advisory music together!
Our consulting practice welcomes Sergey Trofimov as new Partner, Head of M&A Advisory
We are proud to announce that Mr. Sergey Trofimov will be joining our consulting practice as a Partner and Head of M&A and Corporate Finance Advisory. He brings in substantial expertise and experience in investment banking and M&A advisory, having served as head of corporate finance departments at investment banks FinPoint (2007-2010), and Meridian Capital (2003–2007), successfully closing a series of M&A transactions. In 1998-2003 Sergey was an investment analyst in private equity fund Commercial Capital, accumulating substantial business valuation and deal-making experience.
Previously, he co-founded IT company Russ, which developed and then successfully sold computer game Drop-Drop (Tetris type) to Japanese public company Data East in 1995. The buyer then localized Drop-Drop and developed its versions for different game platforms including Coin Machine, Sega Saturn, Sony PlayStation, Game Boy, etc. Before that, Sergey made a successful R&D career in physics, starting from the Soviet era.
Sergey joins us with his M&A advisory team, and existing partnerships with appraisal and legal advisory firms for M&A advisory projects. We are happy to welcome Sergey and his long-time comrades, and to engage in joint corporate finance projects requiring strategy, efficiency and post-merger integration advisory skills!
Andrew Afanasiev finishes advising Big 4 firm on launching new business unit, manages projects
Our consulting company's co-founder and CEO Andrew Afanasiev has succesfully completed an advisory assignment for one of the Big 4 firms in Moscow. Andrew's role was to develop the concept, strategy and financial plan for a new service line (strategy advisory), that the advisory firm wanted to launch, using his subject matter competencies. Andrew developed a blueprint for key business processes and cooperation with other involved internal departments for this new service line.
Andrew was also asked to demonstrate how to sell and run such projects, acting as an externally hired project manager. Among the projects Andrew managed was strategy development and financing modelling for an up-and-coming SaaS VCS operator, and valuation and deal structuring of the major RUB 21.3bn (USD 760mn) acquisition of a stake in Inter RAO UES power major by state Vnesheconombank (VEB) for the purposes of funding the target company's investment program at OGK-1 power generating company. Andrew also managed several other projects utilizing his strategy and finance skills, and was glad to leave an imprint and contribute to the development of the advisory firm's business in Russia.
Strategy, sales efficiency improvement recommendations provided to Thai CP Group in Russia
Turning Point Consulting has completed its 6-month advisory effort on the Russian business of Thai Charoen Pokphand Group (CP Group), managed through Charoen Pokphand Foods (Overseas) - CPF Overseas LLC. CP Group is one of the world's biggest agribusiness companies (ranking #11 as of last year), with significant business interests also in telecoms, retail trade and real estate development. In Russia, CPF Overseas recently launched the 2nd biggest fodder feed plant in the country, situated in Lukhovitsy outside of Moscow, and is also launching several pig farms in Central European Russia.
We looked into CP Group's overall strategy for Russia's agriculture and food sector, focusing on several segments of strategic interest, especially in meat products. As part of this effort, we advised CPF Overseas on its fodder feed business, focusing on marketing and sales effectiveness, taking into account local market practice. We believe there is a bright future for CP Group in Russia, and will be happy to continue supporting it in its market expansion!
Strategy revamp project completed for major real estate consultancy, as advisory practice takes off
Andrew Afanasiev has completed a major strategy revamp and repositioning project, started on Feb 9, 2009, covering Russia and CIS, for a leading international real estate consultancy. The company continues feeling the effects of the global financial crisis, and has asked Andrew to help redesign its research and advisory service offering. Detailed market trend and competitive analysis was performed, with market best practice pointed out and revamp guidance provided for each respective product segment. The recommendations were very well received and are already starting to be implement by the real estate consultancy.
This successful experience has prompted Andrew to launch a strategy and efficiency advisory practice, focusing on Russia and CIS. Talks are being held now with potential partners, who are encouraged by this particular project, as well as Andrew's previous successful career in consulting and investment banking. Being launched at a tumultous time, the consulting practice takes the name Turning Point Consulting (TPC), and will be happy to help clients gain clarity and confidence in the key business decisions that they make.
By way of background, through the end of 2008, Andrew served as deputy CEO, Head of Research, and acting Head of Equities at Nordic European investment bank Glitnir. The bank effectively placed #3 in terms of investment profit margin among all investment banks and brokers in Russia, managing to avoid losses in 2008, despite the 70% stock market crash. Before that, Andrew worked as Global Head of M&A Analytics, and previously as CIS Head of Economic Analysis at US business data and analytics major ISI Emerging Markets (May 2001 - Feb 2008). He started his career in business analysis and consulting in 1997, and has developed strong strategy and corporate finance skills, which he now brings to the fore to serve new potential clients.