news2biz talks to: Jacek Pogonowski, Partner at Value4Capital
news2biz: When we spoke a couple of years ago you said it was your goal to create a leading security services company in Poland. Are you there yet?
Jacek Pogonowski: Depending on estimates, Konsalnet and G4S together make a number one or a very strong number two player in the sector. In that sense, one can say that we have achieved our goal, but we believe there is still plenty of work left to be done in Poland. We remain open to further acquisitions, should an attractive opportunity arise, but we are interested in companies with annual turnover of PLN 100m or more and there are only a handful of those in the highly fragmented Polish market.
n2b: And besides company size, what other key criteria do you apply, when it comes to the potential takeover targets?
JP: We are looking for businesses that could either significantly boost Konsalnet market position, and this is when scale of operations is important, or expand its technological capabilities. I can imagine acquiring a smaller business, but one that would raise our potential in more technologically advanced security services. Konsalnet could certainly use even more competence in this respect, as this will be the way of the future. Now that we have achieved a leading position in Poland, we are also looking at other markets in the region, but Poland is, and will remain, our core market.
n2b: What are your short-term priorities?
JP: First we are going to focus on merging Konsalnet and G4S, including rebranding of the latter, and we believe the entire operation should take no more than a year. Further additions to our security portfolio are welcome, but they will not be the top priority. We are also expanding our business in Romania.
n2b: What’s your take on the current situation on the Polish market and outlook for the future?
JP: There is very little reliable data on the security services market and the picture is rather unclear. But I would say that in the 2011 and 2012 period the growth will be flat at best. The economic slowdown has impacted security outsourcing, and prices have hit the rock bottom. As for our projections for the future – there is still a lot of room to grow. Poland’s utility giants, including the top gas & power companies, are yet to outsource their security operations and the same goes for airports and seaports. This is where most of the opportunities for experienced security contractors will come from.
n2b: To what degree have tenders organized by the public administration contributed to the ongoing price war in Poland’s security sector?
JP: I would summarize the situation this way: public sector clients pretend to be paying, and security contractors pretend to be guarding. The situation is unhealthy, with prices in tenders being set below the level at which any services of reasonable quality can be offered, often below any acceptable wage level in fact. This will go on only until something bad happens and then everyone, including the media, will start asking how come anyone could have expected to receive any decent services that cheap. There are always some companies that manage to cut their costs via questionable fiscal and employment practices but it’s a pity they often get the public contracts. We simply refuse to participate in such tenders. But in my opinion this cannot go on for much longer.
n2b: As a private equity investor, it is only a matter of time before you start thinking of exiting Konsalnet…
JP: I think we will hang around for another two years at least, oversee the merger and further development of the business. As the company expands, so do our options. We get offers from major security players and financial investors alike, but floatation on the Warsaw Stock Exchange is also a possibility.
n2b: Foreign security firms haven’t really had much luck in Poland. Do you think they are still interested in this market?
JP: I think they had really underestimated the local competitors. After all, the world’s top security firm G4S made it only to number four in Poland and eventually sold the business. Brinks, which is a major player in the US, has merely a small business in Poland. Spain’s Prosegur, one of the top three in the world, hasn’t even tried to enter. I believe they are all waiting for an opportunity to grab a major share in the market, once the consolidation progresses a bit further. Konsalnet could certainly be the ticket for them.
Lech Kaczanowski, news2biz POLAND