On January 18, 2021, CEE Legal Matters reported that DGKV had represented the Mezzanine Partners consortium in a public procurement dispute with the Bulgarian Fund of Funds. CEEIHM spoke with Evgeny Angelov, Managing Partner at Silverline Capital, to learn more.
CEELM: Tell us about Silverline Capital. When was it established and what areas is it planned to invest in?
Evgeny: My partners and I participated in a tender organized by the Fund Manager of Financial Instruments in Bulgaria to become an LP in our new fund. We registered a consortium - Bulgarian Mezzanine Partners - for the purposes of the tender and have now established Silverline Capital as the fund.
The fund’s primary focus is on providing either equity or mezzanine financing to mature companies which an established market position and a proven business model. We are mainly interested in companies in the services and niche manufacturing sectors. Silverline Capital will be investing between EUR 2.5 million and EUR 9 million per company, which is significant for our region and sufficient for most SMEs. Our goal is to help these companies scale up, expand to other markets, and increase their revenue/profitability.
CEELM: The tender you mentioned was for EUR 38.5 million in funding provided by the FMFIB, right? Could you tell us a bit more about its process? For example, who else participated in the tender?
Evgeny: The tender was structured in such a way that the FMFIB would, as the anchor investor, provide the winning fund manager with 70% of the fund capital. That manager, on the other hand, needs to raise the remaining 30% of the capital from private investors. Most of the funds were provided to FMFIB by the EU and are country-specific, so they can only be used to invest in Bulgarian target companies.
A total of five or six teams participated in the tender. All of the teams were new and all of them proposed to create new vehicles after the tender. This is quite a common occurrence in our industry, especially in regions where said industry is not very developed.
The tender consisted of several rounds near the end of 2019. In each of the rounds, the personal track record of team members was evaluated and they were correspondingly ranked. Each of us had to submit documents proving investments and divestments we had completed during the past few years. In the world of investing, the individual is usually very important, so, when we won the tender in January 2020, we were obligated by the agreement with the FMDIB to transfer the key individuals from our consortium to the newly-formed Silverline Capital.
However, that’s not the end of our story, because the second-ranked team contested the results of the tender and requested that the FMFIB reviews its decision.
CEELM: And that is when the dispute with the FMFIB ensued?
Evgeny: Not yet. Based on our competitor’s appeal, the FMFIB reviewed all the documents we submitted and declared us as the tender winner again. Later on, however, as we were in the process of submitting all the necessary documentation for signing the formal agreement with Silverline Capital, FMFIB requested us to submit one of the documents on very short notice.
We found the request to be very strange, as the deadline they set was not mentioned by any relevant statute. So, when we complained about it and said that we cannot possibly meet that deadline, the FMFIB disqualified us and awarded the tender to the second-ranked team.
We brought the case before the Sofia High Administrative Court and, in December 2020, it ruled that the FMFIB’s decision breached the Law on Public Procurement. As a result, the court reinstated us as the tender winners and awarded us with legal expenses. Finally, in January 2021, we signed the operating agreement with the FMFIB.
CEELM: Now that the agreement is finalized, what is your next step?
Evgeny: The FMFIB will become an investor in the fund with a commitment of EUR 38.5 million, which represents 70% of the capital needed to reach SMEs. We will begin investing in our target companies once we have raised an additional 10% of the total fund size. The remaining 20% of the capital will be invested at the level of the company by our co-investors.
CEELM: It was reported that DGKV represented you in the dispute. What made you choose DGKV in this case and will Silverline Capital continue its cooperation with the firm in the future?
Evgeny: We have a long-standing relationship with DGKV. My partners and I have cooperated on different projects with the firm, so when it came to the establishment of Silverline Capital and the subsequent dispute, we knew that DGKV would provide professional and reliable support. We will definitely continue our cooperation with the firm in the future.
Originally reported by CEE In-House Matters.