Small Business Development Company Ltd. (KvfP Zrt.)
General framework of operation
The Small Business Development Company Ltd. (Kisvállalkozás-fejlesztő Pénzügyi Zrt., further on referred to as "KvfP" or the "Company"), has been incorporated on December 20, 2001. The Company's total equity amounts to 4.4 billion HUF (appr. 13.6 million €). The aim of its establishment was the promotion of development and growth of the domestic small and medium-sized enterprises basically in a way that additional capital is allotted to them by increase of their subscribed capital.
KvfP is run substantially by budgetary sources, the share of private investment is 7.35 %, equalling to 250 million HUF (appr. 1 million €). Nevertheless, the operation and decision making occurs under commercial approach. When deciding upon any investment, the Company invests its equity. Amount is invested only in the form of equity investment and not as a commercial loan for the target companies.
KvfP is a member company of the Hungarian Venture Capital Association ("HVCA"; Magyar Kockázati- és Magántőke Egyesület; MKME).
Investment partners, targeted customer groups and sectors
Basically, the equity investment activity of KvfP is characterized by an economic sector neutrality, however, enterprises of the steel manufacturing-, the shipbuilding- and the coal-mining industry as well as enterprises in difficult position cannot be subject of venture capital allocation. KvfP will make, also in the future, all efforts to maintain the multisectoral character of its investments. The Articles of Corporation does not allow the Company to invest into agricultural and financial enterprises. KvfP's capital investments cannot be allocated for direct export activity, or direct import substitution (cannot be used upon the use of domestic in preference to imported goods).
Especially important aspect is that the accessibility of investment possibilities should be open for the Company's all potential customers, consequently, the transparency and the availability of the program for every eligible small enterprise is of crucial importance.
Enterprises under liquidation or administration of bankruptcy as well as those having any public overdue debt cannot be subject of investment by the Company.
Size of investments
During the entire investment period one single enterprise can obtain investments of 100 million HUF (equalling to about 400.000 EUR) as maximum, which, in case of need, can be completed by bank loans and by other sources applied for.
Nature of investments, degree of participation
Basically, KvfP invests into the customer's subscribed capital. The capital increase occurs on nominal value. The size of KvfP's ownership cannot exceed 49%, the Company is not allowed to acquire majority interest. The aim of this is that the management of the enterprises remain explicitly with the prevailing owners, further on, that the enterprises do not lose the title of any benefit which would otherwise be due to them.
Lifetime of investments
The typical duration of the investments takes 3 to 5 years. In our experience the longer lifetime is more popular in majority of the cases. KvfP expects its acquired ownership to be bought out by the enterprise during minimum three but maximum five years, enabling the Company to make free room for further investment. As a matter of our investment business policy we expect at present that the enterprises begin with a scheduled buying back of KvfP's business share in the third year of the investment, thus, KvfP's sources applicable for equity investment purposes remain continuously available on the presently necessary level.
Expected return of investments
The Company is, like the owners of any other enterprises, going to undertake risks but simultaneously, expects a return on its invested capital. When buying back KvfP's business share, the source of the buyout amount - i.e. the aggregate of the invested sum and the expected return - is the profit after-tax of the targeted enterprise. Consequently the business plan, as presented by the enterprise as a part of the equity increase application, must definitely underline that the equity investment will result in an excess business income for the enterprise. The same business plan shall also confirm that the enterprise will be capable, out of its operational profit throughout the investment period, to produce the sufficient financial sources for the buyout.
The expected return of the investment covers basically the Company's costs of fund, the margin is computed proportionally with the grade of risk undertaken.
The contractual background
The co-operation agreement (contract of syndicate) to be signed between the Company and the enterprise of the targeted investment stipulates the main details of the investment as well as the parties' rights and obligations during the investment period, further on the exact terms and conditions of the buy-out. Since the equity investment made by KvfP should be considered as an option transaction, according to the Hungarian Civil Code, the co-operation agreement shall also include the optional rights and obligations of the parties involved. One of the most substantial stipulation in the agreement is that the buy-out of KvfP's business share must occur within the maximally allowed 60 months as from the date of the investment - first of all by the enterprise itself or by its majority owners, but a buy-out by the market is also not excluded as it has already been the case.
The experiences of KvfP's realized exits acknowledge and strengthen the propriety of the present pricing methodology of KvfP.
Information needed for evaluation of investment projects
The collateral of KvfP's equity investment is basically the acquired business share. In order to get the investment application approved the enterprise shall present precisely defined documents to the Company. When evaluating the documents the enterprise and the planned project are qualified by KvfP (in accordance with the Investment Valuating and Risk Handling Regulations of the Company).
Monitoring
The business data of the enterprises in our portfolio are continuously followed by our monitoring. The data we receive from the portfolio enterprises in the course of their data supply are analyzed and evaluated by KvfP, compared to the enterprise's business plan. KvfP is in possession of comprehensive experiences in resolving, handling and managing of any troubles the enterprises may face in respect of their business activity. Such experiences constitute good ground and, at the same time, sources to the advisory activity we offer our customer enterprises relating to KvfP's monitoring. In many cases the advisory activity may include the introduction of the inexperienced enterprises into the business life. By our experience the wide regular contacts with KvfP exercises a favourable impact on the general business culture of the portfolio firms.
For contacts and further information please contact:
Address: Kisvállalkozás-fejlesztõ Pénzügyi Zrt.
1053 Budapest, Szép u. 2.
Tel.: +36 1 486 3240
Fax: +36 1 486 3232
e-mail: info@kvfp.hu