On January 13, 2021, CEE Legal Matters reported that B2RLaw, working alongside Sidley Austin, had advised founders Pawel Malon and Marek Jakubow on the formation of Stability Capital, a Warsaw-based search fund. CEEIHM spoke with Malon and Jakubow, Managing Directors at Stability Capital, to learn more.
CEEIHM: What is Stability Capital and what is its mission?
Pawel: Stability Capital is a search fund based in Warsaw. Our mission is to find one great company and focus on its development, rather than build a portfolio of assets. As a search fund, we are more flexible than regular private equity, which makes us more approachable by family-owned businesses. Our flexibility can be seen in the way we structure and approach an investment. For instance, even though we are looking to acquire a controlling stake in a company, we are flexible in keeping the old founders or entrepreneurs in place and we would even leave them a substantial stake and governance rights in the business.
Another difference between private equity and a search fund is that most of our investors are not silent investors. Quite contrary, they are both our advisors and our partners on this journey and we rely on their help regarding the investments.
We think of ourselves as long-term partners to companies who wish to attain long term growth, so our aim is to find the best possible solution for both us and the investee. We believe that we are providing a new investment approach in CEE. The trend of search funds has been going on in the US and in Western Europe for a while now, but it began catching on in Poland as well. So, in a way, it is a new concept on our market and the response to it has been very positive.
CEEIHM: As CEE Legal Matters reported in its article on the fund's formation, there is already a diverse investor base involved, including Adamed Technology, Relay Investments, Vonzeo Capital, Housatonic Partners, Kinderhook Partners, Ambit Partners, Afinum Management, and AI Global. How were these investors identified and why did they choose to get involved?
Marek: It took over a hundred interviews with other search funds and experts in the investment field in order to identify the investors we should approach. We worked solely on recommendations to find investors who understood Poland and who could understand what we want to do.
We are very lucky to have the investor base we do. Their mix of capabilities and know-how is quite an asset. Since our plan is to focus on one company and take it to the next level, it is very useful that our investors have broad experience from various markets and industries. In addition, they are committed to our goals, as they have a stake in our search fund.
Pawel: One more small point – we really value the family office element in our investor base. As a result, we were looking for investors who understand what it means to run a family business.
Marek: What helped in attracting investors was our personal story and the strong fundamentals of the Polish market. Both Pawel and I are in our early 30s and we are entrepreneurs at heart. We both hold a Master's of Business Administration from INSEAD. He worked in investment banking and private equity in London, while I worked in management consulting in Warsaw and in the Middle East. According to a market study done by Stanford, search funds are made up of people like us – and that appealed to the investors.
On the other hand, the investors believed that now was a good time to invest in the Polish market. The economy is strong and is steadily catching up with Western Europe. Most of the private companies were founded after 1990 and will undergo a succession in the next couple of years. Mix that with lack of private capital and it seems like a perfect market for search funds. Furthermore, the search fund model is still not very popular in Poland -- the first transaction just happened two months ago.
CEEIHM: What's the next step, now that the search fund is set up?
Marek: Our plan is to roll up our sleeves and search for that one great business in Poland and take it to the next level.
We are looking for healthy companies with a strong market presence, good fundamentals, momentum to grow and expand, and an owner who is ready to move on.
These companies are usually run by their founders, so by taking it to the next level we mean fresh capital and a fresh start, introduction of a professional management board with new competencies, new strategy (often prepared with the founders/entrepreneurs) and a focus on effectiveness, culture and growth, perhaps even internationally.
Our search relies on a three-pillar system. The first one being the brokers. Second, we run a proprietary search looking at databases and financial statements from the top down. Finally, the third pillar is the personal network and a bit of luck.
CEEIHM: Both B2RLaw and Sidley Austin advised you on the formation. What was each of these firms' mandates exactly?
Pawel: Stability Capital is incorporated in Delaware, so Sidley Austin helped us with the international aspect of the establishment. B2Rlaw advised on the Polish side of the story, in terms of drafting documentation and guiding us through the whole process.
CEEIHM: And why did you select them to provide this assistance?
Pawel: I am of the mind that everyone should have a good tailor and a good lawyer. Doing business with law firms is a relationship game. I worked on some transactions with Sidley Austin in the past and the same goes for B2RLaw. I have cooperated with Rafal Stroinski [Senior Partner at B2RLaw] since the beginning of my investing career. Both firms helped us a lot and we can always expect them to provide good quality service.
Marek: In addition, both Sidley and B2R are among the few law firms in the world with experience with search funds.
Originally reported by CEE In-House Matters.