Slaven Kordić: Our plan is to have a hundred Museums of Illusions in the world in the next five years.

The recent takeover of Metamorfoza has revealed to the public that the concept of the Illusion Museum of Education and Entertainment has spread to a whole range of cities across four continents in just six years. What the further plans of Invera Equity Partners, a private equity fund management company, with Metamorfoza are, and what innovations we can expect in the private equity fund industry, Slaven Kordić, executive partner in IEP, revealed in an interview, in which he announced two new acquisitions.

You recently invested in Metamorfoza. How did this happen?

– We started talking to the owners of Metamorfoza even before the pandemic, at a time when we did not yet have a registered fund, but we had an idea to start it. In the meantime, the founders of that company entered negotiations with another fund, but the investment was not realized. We meanwhile had set up a fund, so we sat with them at the table again and started negotiating.

Why did you choose it?

– There are several reasons for that. Metamorfoza, in addition to the company in Croatia, owns two subsidiaries, in the United States and Hungary. The ‘Museum of Illusions’, a Croatian concept devised by the founders of Metamorfoza, has become a global story. It has now grown to 36 locations worldwide and generates more than 50 percent of its revenue in the U.S. market. In addition, the company’s financial performance is very good. It has no debt and is highly profitable.

So, it has spread around the world through franchising?

– Yes, Metamorfoza spread through the franchise because such a concept is the least capital intensive. And that proved to be a very good decision because thanks to that, in a short period of time – since 2015 – it has expanded extremely quickly. We will modify this business model a bit – we will keep growing through franchising, but we would also like to open our own museums in top locations. We already have nine franchises signed for next year. Our plan is to have 100 museums in five years. It is not serious now to predict what the ratio will be between franchises and our own museums, but we believe that we will have at least a dozen, and maybe more, of our own. We are very excited about that. 12 or 13 years ago, I worked as a consultant to our entrepreneurs whose companies were bought by various foreign companies. And today we are witnessing that Croatian companies, such as Infobip, Rimac, and Metamorfoza, are expanding in foreign markets.

Didn’t COVID-19 sway you? The entertainment industry segment has been among the biggest losers during the crisis…

– The biggest risk of this project is COVID-19. The concept itself had been proven before. It turned out that people like to come to such museums. The only potential problem is re-lockdown. Although COVID-19 hit Metamorfoza and its revenue fell by about 50 percent, it, like its franchisors, managed to remain profitable.

Then it is a profitable business if it can survive with such a decline…

– That is one of the reasons we invested in the company. Besides, we love the concept. We think it is cleverly designed as well to grow further. Of course, we have recognized both the founders and employees as potential partners with whom we will further develop the company.

On the other hand, isn’t such an idea as the ‘Museum of Illusions’ relatively easy to copy?

– This concept is of course difficult to protect, and with small modifications, someone can certainly copy it. The best way to defend against competition is to be first in the market. And that is exactly what Metamorfoza has been enabled to do by the franchise concept – to expand and take the first position. In that segment of ‘illusion’, it is currently the biggest. Such a concept belongs to the so-called mid-way segment of the entertainment market. It is a form of entertainment, an attraction, where people spend an average of up to two hours. This category also includes places such as ‘Madame Tussauds’, ‘The Chocolate Museum’, ‘The Museum of Broken Relationships’, etc. The segment grew strongly before COVID-19 and included the world’s largest players such as Lego, which together with Blackstone owns the company, Merlin Entertainments, which operates attractions such as ‘The London Eye’, ‘Madame Tussauds’, and ‘The London Dungeon’. They are developing this segment strongly and see it as the greatest opportunity for growth. When we first spoke to the owners of Metamorfoza, they only had 15 museums. And by the end of this year, there will be about 40 of them. They recently opened a museum in Milan, and will soon open in Tel Aviv, Philadelphia, Budapest…

Can you use the example of Metamorfoza to explain what you bring to the company that it could not do alone? To demystify the role of private equity funds, what do such funds bring to entrepreneurs?

– When we talk about it, we should also understand the motivation of entrepreneurs. At one time I gave a lecture in which I talked about the five transactions we made that year. None of them were the same. Examples are Infobip, which has been recapitalized and is likely to go into an IPO, and Nanobit, which has been sold to a strategic partner. And the structures of these transactions are different. So, a lot depends on the desires and motivations of the owner. The founders of Metamorfoza clearly expressed their wishes. First, that they had no problem selling the majority stake, but that they also believe in their concept and didn’t want to sell 100 percent of the company. We found ourselves at the level of 65-35. So, they kept a smaller share in the company because they believed that we would achieve growth. It was very important for them to get a new impetus in the context of the money injection that will be used for expansion. That is why we recapitalized the company with three million euros. They also stated that they were ready to work in the company for some time and transfer their knowledge but also to move to advisory positions over time.

You are now appointed to the management board of the company.

This is only a temporary function. We will soon be bringing in a new CEO and CFO, and it turns out we need both a marketing expert and a new operations director. We will also strengthen the development department and the franchisor support department. Now the company has seven people but will soon have about 20. We expect the company to grow very quickly.

 So, you only got into the story with a recapitalisation, or did you pay off the owners as well?


When investing in companies, do you consult with experts in that specific area in which you are investing?

When I and my partner in the fund, Kemal Sikirić, worked on the concept, we said that if we do not know which specialist or expert to call in the first five minutes of the project presentation, it will be difficult to realise this investment. We look at a lot of companies from different sectors and niches, and we must rely on experts in different ways. For example, when buying a stake in Metamorfoza, we hired three companies. Andrija Čolak connected us with lawyers with many years of experience in the franchise industry in America. The second company we contacted for help is owned by a German who has developed a franchise business in America and who will now be our advisor, and the third company deals exclusively with franchising in the entertainment industry. All of them helped us a lot to better understand the business of Metamorfoza. Of course, we also conducted the usual in-depth legal, tax and financial recording. That part of the preparation, the availability of industry experts, which I mentioned, is very important because when you buy a company, you must have a team of people and the available knowledge to successfully implement the set strategy.

What other companies do you intend to invest in?

Steve Jobs said you need to invest in things that make you happy. All of us in the company are very happy with the entertainment sector, and we are very happy with this concept that has come out of our area, which does not happen every day. According to our agreement with investors, we should not be exposed to more than 30 percent in one sector. In one year, we looked at about 300 potential companies, many of them technological, then in the field of cyber security, aggregators, companies that deal with employment…We made 13 non-binding offers, one of which resulted in success. We have now entered the process of in-depth analysis for a Slovenian company.

What sector is it from?

I can only say that this is a company in the field of green energy and reducing harmful emissions. It is the largest in the region and is very export-oriented towards Germany, Switzerland and Austria. We are interested mainly in younger and more propulsive industries. When investing, three areas or topics are important to us. First, the company must operate in the region or have a product that is competitive at a European or global level. Another topic is that the company has the potential for consolidation – we see that every company we buy can further acquire. For example, the plan is for Metamorfoza to acquire this fall. We negotiated this transaction while we were arranging the investment in Metamorfoza. The third topic is asset underutilisation – we always look at whether the company has tangible or intangible assets that we can use smarter with our knowledge. For example, in a sector, the EBITDA margin is 10 to 12 percent, and the company we are looking at has a margin of only 3 to 4 percent. We need to see where that difference goes. In such a company, if you arrange things well, you can make an interesting return with very little growth.

What financial indicators do the companies you invest in have to have?

We planned to invest up to 15 percent of the fund in one company. This means that we can invest in one company from 3 million euros, which is 5 percent of the size of the fund, to 9 million euros, or 15 percent of the fund. Translated into revenue and EBITDA – these are companies with revenues of around 10 million and/or EBITDA of around 1 million euros. We can also buy companies with lower EBITDA, but then they need to have great growth potential. When it comes to industries, we target quite broadly: manufacturing companies, then companies from the food industry; business services, which is a very wide area, for example, it includes health services; then the TMT segment – telecommunications, media and technology, and tourism. Given the region in which we aim to invest, the former Yugoslavia, it is difficult to specialise in just one area.

Are you finding investment targets yourself, or are these companies already offered for sale?

My partners and I have been dealing with small and medium enterprises for more than 20 years. We were first in one fund, then we developed Ascendant, a company specialising in mergers and acquisitions. In all these 13 offers we made, we approached the companies ourselves.

I guess it’s that much easier – because you don’t have competition?

Yes. If you produce the deal yourself, then you are mostly alone or have significantly less competition. This gives you a definite advantage. In addition, you can get more information from the company before submitting an offer. In that case, when you make an offer, if you do not encounter any problems during in-depth recording, you are pretty sure that you will do the job, which is desired by the founders or sellers and us.

Apart from Croatia, you have offices in Slovenia and BiH. Will you invest mostly in those three countries?

Up to 60 percent of investments should go to Croatia and Slovenia, and we intend to invest the remaining part in companies in Bosnia and Herzegovina and Serbia. We have open offices in Zagreb, Slovenia and Bosnia and Herzegovina, and we are the only regional fund with three offices. We believe that we need to be close to the market, i.e., close to potential partners.

Recently, several private equity funds have been established in Croatia after a rather lull in this segment. What can we thank for that?

The main reason is the European Investment Fund, which has given a tremendous boost. The EIF wants this type of financial instrument, which was desperately lacking in the market, to emerge and be launched in this market. Together with development banks, such as HBOR in Croatia, the EIF is the initiator of many initiatives in the private equity industry. They basically launched the market and found managers who already have experience in private equity funds for various financial instruments from the private equity segment – from venture capital intended for seed investments, then venture capital for slightly larger investments, at the level of 1 million to 2 million euros, mezzanine financing and ultimately this segment in which we are, which involves recapitalisation and takeover of companies from owners. The segment that is not yet covered and that is yet to come is the so-called technology transfer. It is about financing projects created at institutes such as Ruđer Bošković or the Brodarski Institute, which are only at the level of an idea. For example, the people who work there make a project, an innovation suitable for commercialisation. Soon, such projects will be available for financing, and both the university and the innovator will benefit from it. Such a thing has not existed so far, and soon, thanks to the EIF, it should come to life in Slovenia and Croatia. And 40 million euros is intended for that.

Can we then expect some funds outside the EIF program in the future?

Without the support of such institutional investors as the EIF, unfortunately, there is currently no greater interest from large foreign investors in this market, which is still perceived as exotic.

What are your expectations regarding recovery from the COVID-19 crisis? What can we expect in the next period?

I hope the recovery happens as soon as possible. We predicted that the consequences of the pandemic would be felt next year but also in 2023. Our investments are 10 years old. In five years, we buy companies, and in the next five we increase their value. We believe that the recovery effect of COVID-19 will be seen over these five years. Besides, we live in a country that is always in a crisis. We are used to doing business and fighting in difficult conditions.