Former Elmec managers become business angels (Business Review, April 2008)
Interview with Sony Mordechai, President and CEO of Global Eye Investments (www.foruminvest.ro)
Watch out (Economy viewpoint published in "The Report Romania 2008", Oxford Business Group)
Natural-born investor (Bucharest Business Week, March 2009)
Former Elmec managers become business angels (Business Review, April 2008)
Until recently at the helm of retailer Elmec Romania, Sony Mordechai, Dimitris Sabalis and Yiannis Lagos, together with their new CFO, Bogdan Bulacu, have become business angels through their Global Eye Investments holding. In an exclusive interview with Business Review, the four talk about their investment stories in Romania, their real estate projects and the start-up projects they're supporting.
The team which used to run retailer Elmec Romania until the end of last year has decided to withdraw from the company and pursue real estate projects, as well as investments in start-up companies through their own holding, called Global Eye Investments. The four who run the holding see themselves as angel investors, who provide friendly capital. Sony Mordechai, who comes from a Greek family which used to own the Elmec mother company in Greece before their exit last year, and his partners, Dimitrios Sabalis, Yiannis Lagos and Bogdan Bulacu, are running a holding which now comprises ten companies in real estate, energy, services, telecom and IT.
Elmec was their first management restructuring story in Romania. The initial idea was to restructure the company and go to another project, which has happened faster than estimated. Elmec Romania's turnover went from EUR 27 million and profit EUR 1.5 million in 2006, to more than EUR 40 million in turnover and a EUR 4 million profit before tax from retail activities at the end of 2007. With the participation of Elmec in the Craiova Mall project last year, profit soared to almost EUR 17 million before tax. "In 2006, the company was more or less at breakeven point," says Mordechai, who took the helm of the company by becoming CEO at end-2005 in order to restructure it, after acting as chairman of the company since 2003.
The management restructuring started by December 2005 and the results only took effect by early 2007. Almost all loss-making activities are now black or at least at breakeven point, says Mordechai.
His current partners, Sabalis and Lagos, joined him in the Elmec business in 2005 and 2006 respectively while Bulacu joined the team towards the end of last year, when their Elmec story was close to an end. In October last year, Elmec underwent a second change of ownership to Hellenic Duty Free Shops, after being initially sold mid-year to the Greek group of companies Laskarides.
"I lost my inspiration after these two ownership changes," says Sabalis, now one of the executive directors with Global Eye Investments (GLE). Both he and Lagos, the other executive director, followed Mordechai, president and CEO, to this new venture.
It was a new venture but not a new firm, as GLE, created by Mordechai, had been investing in real estate in Romania since 2003. Meanwhile, he decided to add investment in start-up companies to the mix. "In 2003, we entered real estate, an area we thought provided the best investment opportunity at the time," says Mordechai.
"We took the experience we had in restructuring companies, and our model of doing business, and we started using it in GLE, in start-up companies from sectors we understand better, to help them overcome challenges," says Lagos, former executive director with Elmec Romania and now executive director with GLE.
They are not planning to stay away from commerce. The companies they have under the GLE umbrella are built to support a new start-up in retail, if they were to invest in such a company, says Lagos. E-commerce could be a future target for the company, and retail, another. "We love commerce. We have been approached by international companies in retail to do joint ventures with them in Romania," says Mordechai.
When he came to Romania in 2000, his main task was to identify local real estate properties for Elmec, set up in Romania in 1999 as importer of the Nike brand. The company invested in land and buildings mainly destined for its commercial activity. Similar investments were performed through GLE, which got involved into various real estate projects, initially indirectly, through other companies, like Alesonor and Samson, and more recently directly too.
"Our current real estate projects in the pipeline amount to EUR 20 million, while the ones in which we invest indirectly reach another EUR 20 million in current value," says Bogdan Bulacu, the CFO of GLE, who previously worked for Microsoft and KPMG.
GLE is working on a logistics project in eastern Bucharest, a EUR 7 million investment, with EUR 2 million invested in land, and on two office buildings in the city, some 22,000 sqm of office space in total. The projects are in the last phase of planning.
Several other real estate projects were concluded through Alesonor, a company in which GLE is a major shareholder, but not a majority one. Alesonor has developed a 40-apartment building on Carol Knappe Street in Bucharest, which is close to completion, and two similar-sized residential projects in Bucharest, already sold last year. The other real estate developing company in the group, Samson, is more focused on logistics projects and on offices.
"We don't like to talk about projects if we are not 99.99 percent sure we will build them," says Mordechai. Real estate is not necessarily their main concern at GLE, although around 60 to 70 percent of their portfolio could go to the sector, which is seen as a secure investment. A smaller percentage is kept for start-ups, which involve higher risks, but even higher returns.
GLE was initially financed with money from family and friends. The involvement in real estate brought them equity to invest in start-ups, for which third party financing could also be available, when needed. "While for a single project we could use leverage for up to 80 percent of the investment, overall, loans should not make up more than 40 percent of our entire portfolio, not only real estate. Sometimes, we prefer to give up on an investment, but sleep better at night," says Mordechai.
Having recently sold several real estate projects, equity is not a problem at the moment, they say. The biggest real estate deal in which GLE was involved was last year's sale of Craiova Mall to Sonae Sierra. The project, in which Elmec owned 40 percent, while Alesonor and a local partner who provided the land held the rest of the shares, was initially drafted to require an EUR 80 million investment. "Our initial intention was to develop the project, but a good offer came from Sonae Sierra, to which we were introduced by real estate consultancy firm Eurisko, so we decided we could use the money for other opportunities," says Mordechai.
GLE is not only looking at businesses in which to invest, but also at people who need financing to pursue their business ideas. One of the IT companies in the group, called Global Eye Technologies, was created after they met IT professional Bogdan Seica, who helped them with a project. They decided to start an IT company together, managed by Seica and majority-owned by GLE.
"We are interested in finding the right person and in working to make their business dreams come true," says Mordechai, who believes people are the biggest natural monopoly on earth. The focus on people was actually an important element in restructuring the retail business, as they have shifted the paradigm from thinking product to thinking customer. To support this they have also founded a new HR company called People First.
by Corina Saceanu
Interview with Sony Mordechai, President and CEO of Global Eye Investments
What are your business and personal expectations for 2009?
Now, when the overall economic situation is on a declining trend, we need more than ever what we call "smart money" that can identify good opportunities and can bring good teams together. In this respect, I expect 2009 to be a good year for our "friendly capital" group, with successful investments in different domains. Moreover, I look forward to see, in the coming year, new businesses grow within Global Eye Investments group, and especially people from my teams developing. At personal level, I expect good memorable experiences, but most of all health both for myself and everyone else.
How are you going to spend your winter holidays?
Winter Holidays are usually the times when people think about their plans for the next year. Exceptionally, this year, during Christmas, I will not focus on my plans for the year to come, but on a very powerful, but later to be accomplished dream - flying to space. This idea arose in my mind this summer, when I had to opportunity of discovering how Virgin Galactic can help simple mortals step on the Moon. Back then, I also had the chance to meet Sir Richard Branson, the owner of Virgin Galactic, a very inspirational moment of my life. So, this year, on Winter Holidays, I will go back to Los Angeles, with my closest friends, to further explore the facilities of Virgin Galactic and the opportunities it provides for pursuing this dream.
I'm sure that traveling in outer space is a dream of many people (maybe of all the people). And I have the conviction that for me is more than a just a self over-indulgence. It's a strong desire to experience the way something that was nothing more than a romantic notion for simple people was turned into routine through the brain power and a lot of hard work.
Watch out
Sony Mordechai, Chairman and CEO, Global Eye Investments, on the Romanian economy in the new European Union era
Romania's ascension to the EU on January 1, 2007 marked a monumental occasion for the country's economic progress. Those investors who were present in the country before its entry have understood Romania's potential for some time. The economy has real competitive advantages that make Romania an ideal location for investment.
Romania's 22m people ensure a plentiful supply of labour and a strong domestic market for the retail, real estate and industrial sectors. In addition to hav-ing a strong labour supply, Romanians have always excelled at foreign languages, science, engineering and computers. This has made the country a good base for industrial engineering, IT, call centres and other research and development work. Romania is located at the traditional crossroads of commercial and energy routes between the EU and Asia. It has an extensive maritime and river network, and a solid system of airports, roads and railways, which are expected to improve with EU funding.
The economy has been prospering of late. GDP growth is estimated at 6% for 2008 and is one of the highest rates in Eastern Europe. While recently surging due to higher agriculture costs, inflation appears to be under control and is set to fall to near the 6% mark set by the National Bank of Romania. The average gross salary is up 23% year-on-year and the unemployment rate is set to shrink to 7%.
The private sector has also been doing well. This can most clearly be demonstrated by the gains seen in the capital markets, which often serve as a bell-wether for the private sector. The Romanian capital market continued its convergence with Europe in the context of market dynamics and infrastructure. Total market capitalisation reached RON80bn ($32.54bn) in November 2007 and the market has moved into
complex products such as derivatives and futures.
Many of these changes alter the entire landscape of investment and business in Romania. In previous years, investors moving into the Romanian market seemed to be attracted mostly by real estate and property projects. Our group has been among the first to move into this domain, identifying, exploring and capitalising on many real estate opportunities. While real estate investment will continue to play an important role in the coming years, investment opportunities are broadening quickly and we believe that the Romanian market is now ready to support new business models in numerous areas.
Global Eye Investments now focuses on identifying and converting innovative ideas into new business
ventures. We believe that the most interesting areas of opportunity at the moment include information technology, telecommunications, energy, construction, real estate, environmental technology, automotive, aftermarket sales, defence, safety, security and franchising. We also see an increasing demand for complex high-end products and services in the commercial and retail sectors. Individuals, spurred by greater personal income, are beginning to distinguish between products on quality and included services. Companies, having met their basic operating needs, are similarly ready to move to the next level of their development. This change offers great potential to investors who have a history of overseeing the growth and development of companies. It also offers great potential for the economy as a whole since it will spur innovation and growth in new areas.
Despite these successes, we firmly believe that the Romanian government must be vigilant in its support of the economy. We would particularly like to see reforms that are aimed at providing greater legislative and economic predictability. Reforms of the labour code and investments in education would also be useful given the current labour market situation.
The Romanian market will remain a very attractive investment destination in the coming years. The economy will continue to grow, increasingly driven by consumer demand. Those who heed its changes will therefore have a significant competitive advantage.
Natural-born investor
From an early age, Sony Mordechai got a taste of investment.
So by the time he was 18, he had turned a 4,000 Euro portfolio into 290,000 Euro in less than three years, proving his flair for business.
And as the president and CEO of Global Eye Investments, Mordechai is expected to do what he likes best: expand the company's operations and multiply its investments. Activating on the Romanian market since 2003, Global Eye (Investments) SRL was created to invest in various projects on the local market, he emphasized. "Our main target on the local market is to act as angel investors for local business people and entrepreneurs. Our support goes beyond providing financing and covers areas such as IT, human resources and developing strong business relations. We also act as partners of choice for companies abroad that plan to expand in Romania," said Mordechai.
According to Mordechai, in its first two years on the Romanian market Global Eye focused on real estate investments, but from 2005 it has expanded its reach to cover areas such as retail, IT human resources and energy. This year, the company aims at further expanding its operations by making equity investments and restructuring companies in distress. "Although we are not currently engaged in any restructuring activities, the financial turmoil and our extensive management know-how in industries such as retail and real estate, both in Greece and Romania, have generated new opportunities, which have been conveyed to us through banks," he said. In addition, the company is planning to create new services to help local business people, who plan to invest abroad or need an administrator for their wealth. So far, the company has already been active in the investment management and consulting segment in Greece, UK and USA. "Our wealth management services will be administrated by our Swiss office and will be limited to a small number of high net worth individuals," said Mordechai, referring to his company's development plans.
In Romania, the company has been involved in projects such as Craiova Mall, Samson Constructii, Living Well and Cosmos Mobile. "The Craiova Mall project was initiated when I decided to spend my 2005 Christmas holiday securing a six hectare plot of land in the vicinity of the Nicolae Romanescu park in Craiova. In 2007, we sold the project to the Portuguese giant Sonae Sierra after receiving an offer we could not refuse. By the time we sold the project, we had received all the necessary permits and already invested ten million Euro." He also indicated that Samson Constructii was established in 2005 to administrate and develop the properties in which Global Eye had invested. "Initially, the company focused on optimizing the assets of struggling firm Elmec Romania. Its activities included the development of stores such as the Famous Brands Gallery, Nike, Calvin Klein, Miss Sixty, as well as the department store on Ion Campineanu street. After the sale of Elmec Group and the exit from the company in 2008, Samson has become involved in developing the operations of clients such as Costa Café, Glou Stores, Notos Group (Lacoste), Lussile and Estelle Adoni. The company's projects also include a 12,900 sqm office and medical center in central Bucharest and a 14,000 sqm warehouse located on the Bucharest ring road.
With a reassuring optimism, Mordechai said that in spite of the global credit crunch his company was ready to continue investing in Romania, a country that can still offer many good business prospects. "We are constantly looking for new opportunities and we have already initiated contacts with strong global companies that are looking for a viable local partner."
Referring to the company's stock exchange investments, Mordechai maintains his optimistic view. "Although we can't predict how our stock exchange investments will perform in the next one or two years, we are confident that they will outperform cash in the next ten years. However we have not been able to invest on the Bucharest Stock Exchange because of the lack of liquidity, poor choice of listed companies and insufficient information about the listed equities."
As for the impact of the current economic turmoil, Mordechai believes his company will not be affected unless the crisis deepens. To support of his view, he said: "We were net sellers both in 2007 and in 2008. To speak strictly about Romania, we had the sale of Elmec, the Craiova Mall, our residential projects and several other assets. In addition, we have not made any significant investments over the last year due to the bubbled prices. The global market deceleration could pose a threat if we had a weak balance sheet. But our cash and liquidity exceed our debts by a large margin, so this is more a time of opportunity for us rather than a threat. With less purchasing power available and more people willing or forced to sell, our overall investments should almost certainly expect higher returns."
While banks are more cautious with their lending, Mordechai sees new opportunities for private equity firms. "I believe Romania is the best place to do business in the region. A strong local partner is essential, but overall the country has been relatively friendly to investors. As the level of competition varies from sector to sector, we prefer to put our money in less competitive industries together with a strong global partner whenever possible."
A graduate in investment banking and international finance from the Cass Business School, City University, London, Mordechai reminisced about his first contact with the world of business. "My first investment consisted of 50 shares of AB Vassilopoulos, which I received as a present for my Bar Mitzvah when I was 14. At the time, the package was worth 150 Euro, while today it is worth 3,000. A few years later, I bought a 0.5 per cent stake in the company, which I still hold today. The company has become the second largest supermarket chain in Greece, with sales of over 1.3 billion Euro, belonging to one of the largest supermarket operators, Delhaize Group."
Speaking about professional success, he mentioned his experience as head of Elmec Romania between 2005 and 2008. "By any measure, my biggest professional success so far has been related to the restructuring and re-organization of the sports and fashion retailer Elmec Romania. When I was appointed as CEO at the end of 2005, the company was struggling with poor results. I brought in as much quality human capital as possible, I re-established the relationships with our partners and made all business units profitable. In less than 24 months, our sales tripled, our inventories were brought to a minimum, all debts were paid back to our parent company and our profit skyrocketed to 17 million Euro, with all the business units in the black." He went on to say that the result was made possible by an efficient team.
Regarding his current position, he said his main objective is to build the foundations of an organization that in a few years can achieve widespread recognition and impact. "This year will be a milestone for our company. We are looking at the markets with great enthusiasm, expecting to witness many changes. We have to remain alert make sure we surf high on one of the biggest waves in 50 years."
Favorites
City: Bucharest for business and Los Angeles for everything
Country: USA because it has everything for everyone
Food: Homemade food from home - Greece
Bucharest restaurant: Yakimono, finally a world class Japanese restaurant in Bucharest
Movie: The Gladiator, Schindler's List, Alexander the Great and Amelie
Last book read: "The Google Story" by David A. Vise and Mark Malseed
Hobby: Read the news, make puzzles and watch movies
Music: It depends on the circumstances
Favorite player: NBA superstar Michael Jordan, I will never forget him
Drink: Good wine, vodka with lemon and fresh juices
Birth sign: Gemini
Last vacation taken: Los Angeles and Las Vegas in December 2008
Role model: Warren Buffet, Steven Covey, Richard Branson and Jack Welch
Office gadget: Blackberry Bold, of course. Also my office chair that has up to 135 degrees of adjustable back recline
Date and place of birth: May 29, 1981, Greece
by Alexandra Calin
