Kemal Sikirić: In the microcosm of the investment world, every acquisition is a chess game

“I have been fortunate in life to have the opportunity to receive a diverse education. It started with completing general high school in Germany and beginning my studies at university, which I later finished in Sarajevo. After gaining several years of professional experience, I felt I was ready and eager to deepen my knowledge in specific areas. This path led me to Oxford, where I completed a postgraduate study in Organizational Leadership. Several years later, inspired by the same need for lifelong learning, I completed an MBA at the leading European business school IMD in Switzerland,” describes Kemal Sikirić, managing partner at Invera Equity Partners Fund, his educational journey for Poslovne novine (Business News). Mr. Sikirić will participate in our conference “Fast-growing Companies – How to Scale Business?” on May 11th.

On the business climate in Bosnia and Herzegovina and the EU

The first association with investment funds comes from American movies in which funds acquire ownership of large or small but potent companies, take control, and, depending on the intentions of the director and the main actor, either make them rise from the ashes or crush them if they are competitors. How does it work in the real world?

“In movies, funds are clearly presented in a much more dramatic way, and a series of cults and misconceptions have been created around this topic. In reality, however, it certainly looks different. Precisely because of dramatization, fund managers in movies, for example, are often attributed the stigma of villains. From my perspective, it is actually the opposite because fund managers are often the driving force and the engine behind creating significant new value in the acquired companies.”

The fund in which you are a managing partner is focused on the countries of the region (except Kosovo and North Macedonia). Based on your previous experience, which country has proven to be the most fertile ground for investments and why?

“So far, Croatia and Slovenia have proven to be by far the most fertile grounds in the region. There are multiple reasons for this – these two countries are EU members, so when you start any business, you have a market of nearly half a billion people theoretically without any borders or barriers. The economies of Slovenia and Croatia are much more developed (if you take, for example, GDP per capita as a measure) compared to the rest of the region, thus offering a significantly greater number of diverse investment opportunities. In addition, both the legal and tax regulations are much more advanced, especially in terms of the operations of investment funds.”

You have not invested in Bosnia and Herzegovina so far. What is the reason?

“I won’t say anything new when I say that political and legal insecurity are the main factors that make investing in Bosnia and Herzegovina difficult. In addition, the domestic market is very small (both in terms of population and purchasing power) and fragmented. Despite the aforementioned challenges, we have come across several interesting investment opportunities in Bosnia and Herzegovina, but unfortunately, we have not been able to realize any of them for various reasons. So, we are still actively approaching the market in Bosnia and Herzegovina and hope to make at least one investment during the investment cycle of the Fund.”

How a museum became a big story

How do you select companies or businesses to invest in? Do they come to you or is it the other way around? What does it depend on?

“In principle, there are two approaches – the so-called active and passive market approaches, and both happen simultaneously and partially intertwine.

In the case of the ‘passive approach,’ investment opportunities primarily come from advisors who represent the owners of companies and approach us as potential interested investors.

With the ‘active approach,’ we perform a top-down market analysis where we proactively analyze various industries and players within them. Once we gather enough knowledge, as a fund, we approach target companies.

The active approach has proven to be much more productive and efficient for us, as all investments in our existing portfolio have happened this way. We identified investment opportunities and successfully realized them.”

One of your most visible (if we may say so) investments is the Museum of Illusions in Zagreb, which currently has dozens of franchises worldwide. How did that come about, and what are the measurable benefits that the Museum has?

“We recognized the Museum of Illusions as a unique and excellent opportunity very early on. In that context, we initiated an initial dialogue with the founders of the company about four years ago. We immediately realized that we shared a common business philosophy, after which we at Invera started thinking about how to enhance the business model and strategy with our resources. We made the investment two years after the initial contact. We utilized this time to gain a deep understanding of the industry and the company’s strategy. The central question that always arises here is how to find resources for implementing the strategy?! No matter how well-crafted a strategy is, it can easily fail due to poor execution (statistics show that over 70% of strategies fail due to poor execution). Along with clearly defining the global strategy with the Museum of Illusions, we also developed a very detailed plan for growth dynamics and the necessary resources. Just to give you an idea of the magnitude of the leap here – we invested in the company when it had seven employees in Zagreb, and now we employ over a hundred people, including the newly opened office in Atlanta (USA) from where all activities for the American market are conducted.”

“What is possible and what is not?

 You also have a great investment in Slovenia…

“Yes, last year we acquired a majority stake in Marles Hiše, the largest and most traditional manufacturer of prefabricated houses in the region. One piece of data that indicates the historical significance of Marles is the fact that the company was founded in 1942 and has since built over 28,000 houses – mathematically speaking, that would be the equivalent of building one house per day since its establishment. This statistic certainly places the company at the forefront of European manufacturers. Similar to the Museum of Illusions, we identified significant potential in Marles by pivoting the existing strategy, so with the help of leading global experts in this field, we developed a new approach to the DACH region markets and largely adapted and optimized the organizational resources within the company.”

“Are there any industries that the Fund prefers or, as a written or unwritten rule, avoids entering?

“We find companies that have the potential for rapid international growth and a globally competitive product very interesting. I believe the aforementioned Museum of Illusions and Marles Hiše illustrate this approach very well. As a fund, we have a clear mandate from our investors (EBRD and EIF being the leading investors) with certain limitations: Invera Equity Partners, as a fund, has its clear investment strategy in more mature companies in the SME segment, so based on the investor mandate, we cannot, for example, invest in start-ups and real estate. This doesn’t mean that these sectors are bad, but rather that we are not a fund that invests in these market segments. We are strictly prohibited from, for example, investing in alcohol, cigarettes, gambling, and similar activities. In addition, we conduct very strict checks on the origin of capital and all key individuals involved in the project.”

On investment boundaries

What are the references that a business must have for you and your partners to even consider it as a potential for consideration?

 “It is very difficult to give a definite answer to this question because the selection process is very complex and depends on several variables. Just for your understanding, in our existing fund, we have analyzed 530 investment opportunities so far to ultimately make three investments. First of all, any business that we consider must have an EBITDA of at least one million euros and must meet the criteria mentioned earlier. After that, we begin to analyze the industry and the company itself, and then, of course, anything is possible.”

The fund has a large number of financial resources. Are there any upper limits for investments?

In theory, there is no upper limit for investments, considering that through our investors in the fund (EBRD, EIF, Croatian pension funds) and partner funds, we have access to additional financial resources. However, given the size of the fund, our investment strategy focuses on investments between 5 and 12 million euros.”

On the connection between business and personal success

Large businesses are certainly an exciting venture with a lot of adrenaline. How much does a peaceful family life and the fact that you are a chess master, which requires calmness and composure, help you in controlling and achieving balance in business?

“A balanced family life is the foundation of everything, and home is a place where a person replenishes their energy regardless of external challenges. I have been happily married for 20 years and have three wonderful children who constantly inspire me.”

Can you compare a business acquisition to a game of chess?

“Chess imitates life in many ways – you constantly have to make decisions under time pressure, differentiate between important and non-important moves, distinguish between strategic and tactical moves… Ultimately, with just one wrong move, you can destroy something you have been building over 40 moves, just like in life where it takes years or decades of effort. In the microcosm of the investment world, this similarity is even more obvious, so each acquisition represents a mini chess game with all the essential elements.”

At our conference in May “Fast-Growing Companies – How to Scale Your Business?”, you are one of the four key speakers. What can conference participants expect from you?

“I am delighted to have the opportunity to present the development path of the Museum of Illusions firsthand. It truly is a privilege to witness and actively participate in the growth of a small Croatian company into a global player present on four continents with 42 museums. I believe this is an exceptional example of scaling and growing a business. I hope to share some of our insights on managing such an endeavor from the perspective of a majority owner with the conference participants.”