EBRD supports SMEs in the Baltic States

By Volker Ahlemeyer

The role of innovation and management practices in determining firm productivity in developing economies

Air Maintenance Estonia is one firm that benefited from a €20-million EBRD investment to a private equity fund managed by Baltcap with the aim of supporting the development and growth of innovative SMEs.

Tallinn, Estonia’s capital, has been a trading centre for centuries. In the Middle Ages, the city was the northernmost outpost of the Hanseatic League and played a vital role in this trading union stretching from London to Novgorod in Russia.

Since the collapse of the Soviet Union, Estonia has revitalised its position as a commercial hub and Tallinn’s trading spirit is palpable in any corner of the city.

This hasn’t gone unnoticed by business visitors and tourists alike who have rediscovered Tallinn’s charm: its many business opportunities, medieval taverns, inns and spas. But, in Tallinn, it isn’t only human visitors who fly in for a relaxing spa treatment – it is also the airplanes themselves.

“We offer a spa for your fleet – that’s our motto for the airline industry,” explained David Williams, the CEO of Air Maintenance Estonia (AME). The company offers a wide range of maintenance services – from mandatory 36-hour checks to complete overhauls of Airbus 320s, Boeing 737s and various other aircraft.

Among more than 30 clients are many well-known names such as Air Baltic, SAS, UT Air, Easyjet and Ryanair.

AME is one of the firms that benefited from a €20-million investment that the EBRD provided to a private equity fund managed by BaltCap with the aim of supporting the development and growth of innovative small and medium-sized enterprises.

The EBRD investment dates back to late 2007 and helped local companies grow their business and even generate more jobs during the difficult crisis years in the three Baltic states.

BaltCap invested in AME in 2010 and now fully owns the company. AME has started to expand since then and now owns two hangars, the bigger of which is the most modern one in Europe.

“Our catchment area is about a 2 and a half hour flight surrounding Tallinn,” said Mr Williams. “We can perform checks on up to five airplanes simultaneously and combine very competitive prices, which are among the lowest in Europe, with high quality labour and a quick turn-around time for our clients.”

While the company’s calendar is filling up for next year, David has also diversified AME’s portfolio. The firm now also offers manufacturing solutions, such as for seat covers and other parts, and also started trading spare parts with other industry partners.

Only a few minutes’ drive away, another high-tech investment has turned a small local medical laboratory into an expanding enterprise.

Quattromed performs a wide variety of laboratory tests – from allergies and blood groups to rare infectious diseases. The company started as a small venture in the late 1990s and employed 45 people in 2010.

With the help of BaltCap’s experience and hands-on involvement, Quattromed’s business has significantly expanded since then and the number of staff has increased more than fivefold.

“Over the last few years, we have established an active network of operations throughout Estonia and expanded successfully into Lithuania and, most importantly, Finland,” explained Rainar Aamisepp, Quattromed’s CEO.

“By now, we perform around 6 million tests per year, with 40 per cent coming from Finland, where we won a tender with a major healthcare provider last year.”

Samples are shipped from Helsinki to Tallinn, a frequent two-hour boat ride. They come from all over Finland, including villages north of the Arctic Circle in Lapland. Still, Quattromed provides the test results reliably within 24 hours on average, outshining most Finnish competitors not only on price but also on speed.

A minute-by-minute schedule in the logistics department ensures that both deliveries and testing are performed on time.

“There are several factors to our success,” said Mr Aamisepp. “Our office hours are certainly more flexible than in most parts of Scandinavia, but first and foremost our clients know that they can count on a highly qualified workforce to obtain accurate and quick test results.”

Air Maintenance Estonia and Quattromed are just two of the 61 companies in which BaltCap has invested across Estonia, Latvia and Lithuania since 1995, from early-stage venture capital through to expansion capital.

So far, there are few private equity funds active in the three countries. Yet their investments are vital to boost the full potential of many innovative small and medium-sized enterprises.

One of the difficulties that many investors have with investing in the Baltics is the size of the companies and of the individual markets, explained Matti Hyyrynen, head of the EBRD’s Vilnius office.

“This leaves many of the Baltic companies desperately keen for longer-term value-additive capital to support their growth opportunities in the region and internationally.”

“Providing equity capital through equity funds allows the EBRD to reach these smaller companies and contribute to their growth,” says Anne Fossemalle, the EBRD’s Director for Equity Funds.

“At the same time the fund manager helps the companies reach their ambitions, to become more institutional and competitive in their fields and beyond.”